This is the fifth article in the personal financial planning for seafarers series by the very experienced Chief Engineer Rajeeve Kaushik. You can read the previous articles of the series here – Importance of Financial Planning for Seafarers  , 10 Common Financial Mistakes Seafarers Make ,  Little Know Facts About Magic Of Savings Seafarers Should Know & 4 Types of Investments That Kill Seafarers’ Hard Earned Money .

Insurance – I am sure you must have heard about the word at various places even if you are a cadet. From the two wheeler that you own, to the ship that you are on- everything is INSURED.

However, when it comes to insurance directly connected to our lives we prefer to avoid any form of knowledge or action. We mainly depend upon other people to suggest various forms of insurances to us. They eventually get our signatures as well as the cheque and then they leave us alone in peace for the next few years until someone else comes along and sells us another something. The more aware amongst us might go deep into calculations regarding how much is the insurance coverage, the money that he or she will get back- and then get convinced that the plan is good and again sign the dotted line.

Let me give you INSURANCE in one line of five words: INSURANCE IS COVERING YOUR RISK. It is not for profit or any gains. If someone tells you otherwise – investigate because he is not telling the truth.

Insurance is a contract between the Insurance Provider (or Insurance Company) and the individual by which the company agrees to COVER a SPECIFIC RISK of the individual for a certain SMALL sum of money called premium. In this sentence each word is important and I am going to base my explanations on these words.

There are broadly two types of Insurance: Life Insurance and Non-Life Insurance.

Life Insurance: includes plans like Money back, Endowment, ULIP and Term Plans.

Non Life Insurance Plans: include Health Insurance, Critical Illness Insurance, Vehicle Insurance, Travel Insurance, Home Insurance etc.

Insurance was started with the sole purpose of providing a support for a person or business in case something adverse happened. The money sought in return by the Insurance company was called “premium”. This premium was based upon the evaluation of risk by the person or business that was being insured. In case something adverse happened, the company gave the promised money otherwise the plan expired after the agreed term (however many months or years it was for).

Life Insurance went on quite fine till the Insurance Companies felt that their business was not growing sufficiently. So they introduced certain plans which gave some money back to the person insured after the Insurance Plan completed, but in return they charged a very heavy premium. This is where the exploitation of the innocent/ignorant people started. Specialist called were hired, a separate branch of Mathematics called Actuarial Sciences were developed and different ways were propounded to extract maximum premium from the public, while giving minimum in return.

Slowly the public was made to believe that when they were getting themselves insured, they were also investing. In India, since 1960, some Insurance Companies have propounded a big lie by peddling schemes which were taking from the Insured Person, more than was being given back. The print on the document was so fine that it could only be read by a good lawyer. The word “SUM ASSURED” took different meaning. Instead of referring to the Sum for which a person was insured, the insurance agents are trying to tell people that it is what they will get back once the insurance period was over. The concept of Life Long Risk Coverage was lost somewhere.

ULIPs (Unit Linked Insurance Plans): were again a big Financial Torture and fraud thrust upon the hapless investor. Almost 35% of the premium was taken away for expenses which essentially meant commissions for the agent. These were most Non-Transparent plans which had very little risk coverage and a defined sum of the premium was invested in the Stock Market through mutual funds.

TERM INSURANCE

This is the product which most of the people need and must go for; even the seafarers. This is available in various countries with different names. However the details of this insurance are as follows:

The Insured Person gets a Risk Coverage of a reasonably LARGE sum for a SMALL premium and can be taken for a VERY LONG term (even upto the age of 75 years).

If the Insured person survives the term of the insurance (which is for every year for the premium paid), then he or she does not get any money. If in an unfortunate incident the Insured person does not survive then the SUM ASSURED is paid to the NOMINEE of the Insured person.

With the above brief description it is important to note that the Insurance must be taken only for the Bread-Winner of the family on whom the family is DEPENDENT financially. This is very important to note because nowadays the market is abuzz with schemes which aim at Insurance of wives, children etc. It is alright to insure oneself as a Junior Officer or a young Rating even if there are no dependents on you. This will help you in locking into a low Premium rate early in life which will be applicable to you throughout life if you Insure yourself for a long time, say an age of 65.

NON LIFE OR GENERAL INSURANCE

In this section there is very little that you may already not know about. There are also very little chances of making mistake except in case of taking Health Insurance and HOME INSURANCE which I will discuss here.

HEALTH INSURANCE

As I had mentioned in my First article, even if your company covers you medically while on board you must make arrangements to insure yourselves, spouse, children and also parents if they are dependent on you. (There are 1 or 2 companies which cover the Seafarers for the entire period of service and also their family -excluding children). Such seafarers may skip this insurance if they are confident of staying with such a organisation for long. In case of leaving such an organisation they must immediately insure themselves and the family for medical expenses.

Health Insurance is again essentially a risk coverage and must be taken for the entire family. There are schemes called FLOATER PLANS which cover the entire family for a sum which is less that what you would pay if each member was individually insured.

SUPER TOP UP PLANS: Nowadays , a new type of Health Insurance has been introduced – it is called Super Top UP plan. In these plans you agree on a deductible (e.g. $5000) and then insure yourself and/or the family upto $20,000. In such cases whatever are the medical bills for the entire year (of Insurance); $5000 will be deducted and rest of the amount in excess of $5000 but upto $20,000 will be paid to you. The advantage of such insurance is that these plans have VERY LOW premium rates, almost a fraction of the normal HEALTH INSURANCE PLAN. Seniors who have a better financial appetite to pay the deductible from their pocket can go for these type of insurance.

HOME INSURANCE

Also called HOUSEHOLD INSURANCE is another type of risk coverage for your house against NATURAL CAUSES such as FIRE, FLOOD, EARTH QUAKE, ARSON, RIOTS and THEFT. These are very cheap plans (at least in India) and you must go for them as soon as you have purchased your own house. If you are a tenant you may still insure your belongings inside the house (called building) against damage due to natural causes and theft.

WHAT SHOULD A SEAFARER DO?

1. Before you join your first ship buy yourselves a TERM INSURANCE of about Rs.1 crore INR ( about $170,000). At this stage (age of 21-22) your premium will be so low that you may find it difficult to believe. There have been cases where the Insurance Co. asks for a salary certificate since the amount of insurance is dependent upon your earning capability, so if you are a First time cadet you may get the insurance once your stipend is paid out. In the initial months you may ask your parents to pay the premium, who will also feel compelled to pay it since your coverage is for their benefit. I am sure you will try to find more about this in your respective country since I am providing you with guidance only.
2. Once you start earning on board go for a floater Medical Insurance so that due to any emergency at home you are not doubly worried in case you are not able to sign off.
3. You may also opt for a Critical Illness cover either separately or as a RIDER with the Medical or Term Insurance. This is useful if you have a family history of any Critical Illness like that of Heart,Diabetes,Cancer etc. The covers are cheap if taken as a rider and the sum is paid out immediately upon diagnosis of the disease.
4. If you have bought a new home or shifted into one after starting a family. You must buy a Home Insurance against Natural Disasters and theft. As I have mentioned above these too are reasonably cheap for the kind of protection they provide. E.g. In India for an apartment in a major city with contents the premium may not go over $50.

IMPORTANT

Before I forget, while going for this and other insurances make sure your family is aware of the Insurances that you have taken.

Also familiarise yourself and the family about the CLAIM PROCEDURE. This is normally given on the website of the Insurance Company and also the Insurance Policy Documents that you will receive.

CONCLUSION

1. In this article you have been introduced to the various forms of RISK COVERAGE at CHEAP RATES.
2. I have by the introduction of these Insurances tried to distract you from the EXPENSIVE INSURANCE PLANS that do not cover you adequately.
3. If you will actually sit down for 2 days on the net and find the suitable plans and calculate the premiums for different policies- you will discover the ACTUAL COST of your ACTUAL RISK COVERAGE.
4. This will release your excess cash that you were spending or would have spent on complex Insurance plans which you would not understand.
5. In the 3^rd issue I have already introduced you to LIQUID FUNDS where you can earn more than the bank deposits- thereby increasing the return on your money earned while you are on board.
6. By these TWO methods itself you have already increased your savings by almost 10% because MONEY SAVED IS MONEY EARNED.
7. Now we must concentrate on PUTTING this money where it can grow surely and steadily and also the commitments that are demanded from us, because nothing comes free .
8. Hence in the NEXT ARTICLE we will introduce ourselves to SAVINGS and INVESTMENTS and the difference between the two.

Note: It is difficult to track things in a single country like India which is so huge and complex. To say that I can advise you for all the countries, whose readers are reading these articles- would be a big lie. I am not acting as your financial advisor. Due to my exposure to different geographical conditions, I have found these products which can be used by us –the hapless Seafarers. The names and methodology of these products may differ from country to country.

Hence my earnest request to you is to please use the power of the internet and find out these products in your country. They are common products and mostly available all over the world. If you find they are named differently in your country, please inform me in the comments that you are so kindly making. It will help us to spread awareness and enhance your own knowledge about your future planning.

Disclaimer: Author is a Chief Engineer from the Merchant Navy and has no formal qualification in Financial Planning. Views expressed are based on his own experience and that of others who have benefitted with his help. He may be reached via email here or at the forums. The author shall not warrant or assume any legal liability or responsibility for the accuracy, completeness or usefulness of any information provided herein.

Insurance – What Seafarers Must Know Before Purchasing appeared first on Marine Insight - The Maritime Industry Guide

During my good old sailing days, the 3 pm coffee breaks used to be my favourite. 30mins of chit-chatting, sipping on coffee, discussing work and complaining more of how bad the internet connection has been!

A great stress buster during a usual hectic day.

One such coffee break, I noticed my Chief Engineer was a little lost, he had not even sipped his coffee that had turned cold lying on the table.

He seemed to be in his own chain of thoughts, least interested in the shore leave story the cadet was telling.

Wondering if he was worried about bunker calculations, I thought to interrupt his chain of thoughts.

Me: Chief, is something bothering you? Are the fuel figures okay for today?

Chief: Did you get your salary today for this month fourth?

Me: Yes, today morning I got an email that salary has been credited in the bank, Company has been doing that very timely I must say. Did you not get it today?

Chief: I also got an email from my bank today which showed the salary credit. Those dollars made my morning. Randomly a thought crossed my head and I decided to calculate how much money I have earned in the last 5 years. I found that I have earned 1 Crore 83 Lacs in the last 5 years, during which I sailed for only 2.5 years; you can say half of the last 5 years I was on vacation.

Me: That’s awesome Chief, then why do you look so worried?

Chief: A few moments after I finished the calculations, I started feeling a little uneasy, my breath got heavier and my left arm started feeling numb. What felt like a cardiac arrest, was luckily not one. But you know how it feels when you realise that you have won the battle but have lost the war. Yes, it felt something like that and that was an eye-opener for me. I have earned 1 Crore 83 Lacs in last 5 years and what I have right now is 8 lacs in bank fixed deposits, some jewellery and few ULIPs which are giving me nothing but negative returns. I am not a lavish spender and the only earning member of the family.

If something happens to me tomorrow, all my family has is one year of finances maximum to survive.

What has gone wrong? Where has all my money vanished?

I am sure many mariners must have or will encounter this question in the future. Most of the merchant navy personals are great at engineering, doing jugaad (Hindi term for “hack”), navigating, living life at seas but are ‘Financially Unlearned’.

We have been taught lots of technical calculations during our engineering days about how a ship works but was never really taught how to manage our finances once we start sailing on those ships.

Mistakes a common mariner makes in his personal financial management

Let us read the mistakes Chief had done during his full journey from 5th engineer to chief engineer.

Mistake 1 – When he signed off as 5th engineer, he had 3.2 lacs in his bank account. For a guy managing only ₹1000 a month back during his engineering days, the amount was enormous. He purchased a new iPhone, lent money to his friends, started going to expensive restaurants & bought new expensive clothes. Never had it occurred to him that he has a year of unemployment ahead where he had to prepare for M.E.O Class IV. A few months later, he was back to square one, hoping that the money he had lent to his friends would come back, but it never did.

Mistake 2 – His father had maintained an Alto but when he signed off after 4th engineer’s sail, suddenly his Dad’s Alto became difficult to steer and brakes became less effective. He picked up a new sedan with power steering and hydraulic brakes.

That car also became flawed once he got promoted to 3rd engineer and within 3 years, he upgraded to an SUV.

Mistake 3 – He had visited his bank to apply for a new credit card. His bank’s relationship manager, to complete their sales targets, asked him to buy two ULIP policies and told him he will gain attractive returns. Not aware of how ULIPs work and blindly trusting his RM, he bought two ULIP policies from his bank of value ₹1 Lac each. This way the bank RM fulfilled his selling target for the bank and earned huge commissions while Chief money got stuck in not so good ULIP for another 5 years.

Mistake 4 – He owned a nice 3 BHK house in a beautiful town but once he became a chief engineer, it was small for his status as he had to show his peers that he earns in US Dollars (Fun Fact “No one cares”). He upgraded that house to a penthouse with 6 rooms and kept paying EMIs for a very long time.

Till this time, whatever he had spent was in policies which did not give the expected ROI & non-profitable assets. This was also draining heavy chunk of his salary every month in terms of maintenance and operations costs. He had saved some money in FDs but those FDs also started vanishing whenever he had to appear for M.E.O exams.

When & Why a seafarer should start investing

Answer to when is The moment you earn a dollar, you should invest a dime (that’s 10%) at least. Start investing when you get your first salary, start with an amount as low as 10% of your monthly income. Thumb rule is to start with 10% of your salary and keep increasing it by 10% every year until it becomes at least 50% of your total monthly income.

Answer to why is All seafarers have a pipe dream of a highly paid job but it isn’t so. Allow me to bring you out of this misconception and introduce you to the actual world.

You all agree that if we must maintain the same lifestyle after retirement, we need to save money from our current earnings.

The average salary of the highest-paid rank on board a dry ship is 8 lakhs per month, but most of us becoming Masters or Chief Engineers sail 6months/year, that makes your effective salary 4 lakhs per month for a full year.

The average expense for a family of four would be ₹75k per month, now you are left with 3.25 lacs in which you have to pay EMI of your expensive car, pay EMI of your 6 BHK Penthouse, pay for maintenance and operation cost of your house, car, etc, plan for family trips, buy the latest gadgets, arrange expensive birthdays or anniversary parties and also account for unfortunate health care expenses.

After these expenses, what is left would go to your savings for retirement and if you wish to lead the same lifestyle after retirement, it definitely won’t be sufficient.

Tell me now, do you feel like we have made the best use of our hard-earned money? Will we be able to spend time with our family and quit sailing by the age of 50 at this rate?

Absolutely not!

One must become financially disciplined for that.

Whenever you are buying an expensive thing, imagine the 60 years old version of you. was buying that expensive thing so important for you that you didn’t even think once, how difficult would it be for me to climb that gangway at the age of 60?

The latest iPhone costs us around 1.2 lacs i.e. 10000/month. (assuming you change it annually). But if we plan to use the same phone for 3 years rather than changing it every year then we save 6666 INR every month. Invest this money in Mutual Fund for 25 years with an annual return of 12% you get a whopping figure of 1.07 crores.

Being financially disciplined will set your course but following that course needs voyage planning and as a seafarer, you know what the basic rule is – Safety First.

Build your Safety Net first

Term Insurance: Life is very unpredictable! Anything can change in just a blink of an eye, even before you know it. In these uncertain times, you always need to have a safety net for your family in your absence. just close your eyes for a moment & imagine not being there for your loved ones anymore! Imagine how will it impact them!

Seems scary?

After the initial mourning and crying, what your family needs is a fund to pay for those liabilities.

Check your bank balance now and think is this fund enough for your family to survive for the next 20 years.

If the answer is no, then get a term insurance plan. Don’t fall for those insurance plus investment plans as one basic rule “never mix investments with insurance”

Health Insurance: If term insurance is your life jacket, then health insurance is that fire extinguisher which is nearest to your cabin.

Hospitalisation can drain a lot of money out of your savings, so on a voyage of financial freedom, you cannot cast off your lines without having good health insurance for you and your family.

Most of the shipping companies provide health insurances, but they last only till you are associated with them.

Down the line, when you will leave shipping, you will be stuck with no health insurance and it will be very difficult to get one then since with age our body starts developing small health problems like diabetes, cholesterol, etc. Thus it is advised to take personal health insurance at least at a young age.

Emergency Funds: You should always have an emergency fund that can be liquidated in 1 to 2 days and should be used in case of engine room fire. This fund is like fixed firefighting system – use it only when you have exhausted all your other options.

Seafarers can find it very intimating to handle finances. When you are on the ship, it becomes very difficult to track financial investments, performances, expenses and new products.

Therefore, it is very important for seafarers to take financial consultation and advise.

Every seafarer, to maintain their financial health, should consult a financial advisor who knows about them and their lifestyle and understands seafarer’s profession.

After all, as the saying goes, A ship is safe at the port, but that’s not what it meant for.

Set your money in the right direction and it will sail to get you the required returns!

Invest well, Invest smart!

Disclaimer: All views expressed in the article are personal opinions of the author

You might also like to read:

• A Guide to Financial Planning For Seafarers
• Importance Of Personal Financial Planning For Seafarers
• 10 Common Financial Mistakes Seafarers Make
• Little Known Facts About Magic Of Savings Seafarers Should Know
• 4 Types Of Investments That Kill Seafarers’ Hard Earned Money
• Financial Planning: Long Term Capital Gain (LTCG) Tax And Life After That

About the Author:

Mayur Agarwal is a BTech graduate from BITS affiliated Tolani Maritime Institute. He started his sailing career in 2015 with Maersk Line and now is a Senior Investment & Insurance Consultant at Mars Millennium Financial Services. Mars Millennium Financial Services, a group company of Millennium Investments, is an Insurance and Investments Consultancy firm founded in 2000. Since then, the company has grown to manage wealth for more than 100 families and corporates. Mayur has experience & expertise in personal finances of seafarers and is currently handling investment portfolios of around 35 seafarers helping them grow their wealth.

For any financial counselling, you may contact him at below details:

+91 7738800825 mayur@marsmillennium.com /  marsmillennium.com

The Financially Illiterate Mariner – Are You One Of Them? appeared first on Marine Insight - The Maritime Industry Guide

Two years ago I had written an article, laying out the comparative advantages of STP Vis-a -vis SIP. I had tried to explain why STP works better for the Marine Professional rather than SIP. The Mutual Fund industry has gone so much overboard in repeating the word SIP that people have come to think of SIP as a product rather than a method of investing in Mutual investing.

However, as long as methodical investing goes Mutual Funds are unparalleled in any country including Philippines, Sri Lanka, Singapore, Hong Kong and even Russia, the only limiting factor being their political conditions. As long as a Marine Professional is investing regularly after selecting the right fund, he can actually fine tune his strategy to get the best out of assets.

I will again attempt to unravel, demystify and simplify the above three methods.

Bulk Investing: This is simple. When you buy for an appreciably large amount like $1000 and above one time thinking that the market conditions are correct in your perspective, it is called bulk investing. This may happen once in a while or irregular intervals.

SIP or Systematic Investment Plan: It is an automated system when an amount determined by you is automatically transferred from your bank account to the Fund that you have selected to invest. In this paperwork is done through the fund house who sends the information for confirmation to your bank and the process can take up to one month to start. This more often than not takes place once a month.

STP or Systematic Transfer Plan: It is another method where a fixed sum is shifted or transferred from one fund (you can call it source fund or S-Fund) to another ( call it Destination or D-fund).For our purpose of primary investing, this takes place mostly from a debt fund to an equity fund. STP cab any frequency Monthly, weekly and even daily.

Now let me point out a few points regarding inherent advantages of STP:

1. For Seafarers, the main issue is the irregular availability of funds. Even for the six months of work due to the uncertainty of joining and signing off, he remains uncertain in investing.

Hence allocating funds to SIP becomes difficult because one has to make a large outlay in the NRE account. Instead, s(he) gets inclined to make lump sum investments.

2. With STP he is secure in the knowledge that if the liquid fund runs out he need not worry as there is no liability. Additionally, the funds in the Debt fund which is the S-Fund are for his use whenever S(he) wants.

3. Cancellation of STP takes 3 minutes online whereas SIP cancellation can take more than 2 months.

4. With STP, apart from the equity funds even the debt fund ( which is your source fund) is earning and appreciating. If you check immediate past 2-year performance equity and debt funds have performed similarly. This may be an aberration but a fact nonetheless.

5. With SIP one’s money in NRE savings of fixed is almost lying idle and depleting with inflation.

6. With our kind of salaries the amount that one needs to invest per month, for productivity gains, one has to invest a large amount per month.

If you put that in 1 SIP per fund, from my point of view it is as good as a bulk purchase.

7. Now consider a single SIP off ₹50,000 split into 5 STPs per week. And you have truly diversified your risk. Plus the amount that was in the debt funds in between these 5 STP dates also continues to appreciate at a higher rate than in a bank account.

Last week’s fall of 5% and the NAVs at which the last 2 STPs were booked will prove my point.

8. With the weekly STPs, one is more in touch with reality and any fall in the market like the last week’s, it will give you an opportunity to put in an extra lump sum to extract more out of the situation by switching about 5 to 10% into your equity funds.

9. A single monthly SIP would have deprived you of the situational opportunity.

10. Last but not the least when you are on board switching from one fund to another will take much less time than making a fresh purchase from your bank account.

A lot of advisors do not go into sufficient depth and explain to the investor that a falling market provides you with an opportunity like a time machine- to go back into time and invest at a level which was much into the past. Hence a person who is earning and earning like the Marine Professional does, can actually go back into time and invest at a level which was when he did not have that money.

SIP is a good strategy for a modest salaried investor who never has a large chunk of money except when he gets a bonus. Its effect on wealth generation for a seafarer reduces when coupled with the money lying idle in the bank account.

I cannot but repeat and repeat, that try and automate your method of investing by utilizing the tools. Mutual Funds provide with immense flexibility and convenience. You just have to use the tools to form a long ranging plan and portfolio and then keep investing and increasing that investment amount as you progress through to the Captain or Chief Engineer’s rank. The first step is the most important to take since I have found that people drag their feet over selecting their first fund for years together losing out on opportunity every day.

You may also like to read – The Financially Illiterate Mariner – Are You One Of Them?

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

Some More On SIP, STP, And Bulk Purchase appeared first on Marine Insight - The Maritime Industry Guide

We get a lot of queries from seafarers who want to start investing their hard earned money through various financial tools and the most frequently asked question we get is what is better for investing money – Direct equity stocks or equity mutual funds?

In this article, Mr Rajeeve Kaushik, mariner and financial planning expert, advise what is the best financial tool for seafarers, both new and experienced. 

Very often I come across the habitual stock investor or a stock trader starting to invest in mutual funds on a trial basis.
It becomes quite easy to see the tendencies of stock investments creeping into Mutual Fund. Little do they realise that both do not work in the same way and following are the reasons why they do not.

1. Near Complete knowledge of stocks:

When an investor is investing in a company stock he knows, or at least he should know, the business of the company and the management. He has at his disposal the possibility to see the companies specific financials in terms of business and the P/L balance sheet. The investor can see the product of the company around him or at least in an advertisement in the paper or electronic media.

This is not so with mutual funds. When you buy a mutual fund you do not know anything about its business, since it is a collection of various businesses.

Sometimes if you are buying NFO you will not know the holding of the fund either.

Mutual fund is simply a collection of your money and the monies of so many other people. If you are careful enough you might see the Holdings of the mutual fund 1 month ago but never the immediate holding of the day.

So it is almost like throwing a dart at the board with your eyes closed.

2. Highly volatile Price of Stocks:

A stock is available at a price which is changing almost every fraction of a second so you know at what price you are buying. Whereas in the case of mutual fund you can only buy until half an hour before the stock market closes. i.e. 3: 00 PM (most of the countries).

On the other hand, the price at which you will be allotted the units is decided in the late evening when the NAV of the fund is declared. Hence in the case of a mutual fund, you cannot invest specifically by seeing the condition of the market or that of any one company even if your fund has invested in that company.

You have to select a good fund and then keep investing slowly and steadily while watching the changes in the NAV or price of your fund with respect to the market.

3. Mutual Funds are more Inclusive:

 Since the mutual fund is a collection of more than approximately 30 companies across diversified sectors if you are investing in a diversified fund it gives you a possibility of making your holistic investment and thereby gaining from it as your country progresses.

4. A Mutual fund is a more Holistic and Organic way:

The mutual fund is generating wealth without getting too much involved in the process. Very rarely will you see a fund becoming twice or thrice in Price or Nav in a single year, whereas Good stocks you could see even it grow 4 times.

On the same scale, you will rarely see a mutual fund falling as much as the best performing company or a worst performing company in a particular time period.

In this way, it protects both the upside and downside.

The question then arises is why should one not go for stocks alone instead of generating lower returns via that of mutual funds.
The answer to this lies in the question itself.

5. Specialised Knowledge for Stocks:

Not everyone has the time or the wherewithal to know about a good stock at a good price and at a good time. In a single day itself, you could see a wild fluctuation of up to even 8% for a single stock which could be unnerving for most. So even if you know a good company but do not know the right price to buy, you could actually be saddled with a liability for a long time.

Professionals who have their own jobs look after their career and skills to develop in the initial stages of the career or even at a later stage ; have very few choices except going for PMS or mutual fund if they want to ensure that the savings keep much ahead of the inflation and they achieve Financial Freedom sooner than later.

6. Learn discipline in investing: This is the reason that I suggest to most of the people to keep away from stock investment or trading unless they have built up a literally stronger and large of a portfolio in mutual funds alone. By building a good portfolio in mutual funds the investor would have got into the habit first is a discipline to invest regularly and secondly, he becomes impervious to the vagaries of the stock market.

This means he/she does not get too exuberant if the market rises and also he/she does not get to disturbed if the market falls.
These habits will go a long way in later life for him to not only make investments in direct stocks but also appreciate the uncertainties in his personal life.

7. Too less about too much: I have seen by experience that when people invest in direct stocks at a good price and good company they invest far too little to make any appreciable difference to their overall income. Hence, even if the company does well, their holding as a percentage of the total investible income that he possesses is very less.

Of course everyone’s life philosophy is different and everybody lives his own life by different parameters; still at the end of the day, one must keep a clear focus in mind about obtaining financial independence sooner than later.

As seafarers or marine professionals, it is imperative that we invest more of our time and energy in building up our professional skills which in fact take a large time and resources as we put on more and more stripes on our Shoulders and feathers to our Peak Caps.

You may also like to read –

• The Financially Illiterate Mariner – Are You One Of Them?
• Financial Planning: Long Term Capital Gain (LTCG) Tax And Life After That

Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

Financial Planning For Seafarers: Difference Between Direct Equity Stocks and Equity Mutual Funds appeared first on Marine Insight - The Maritime Industry Guide

Today, the Nifty touched 10000 mark and then promptly came down. The Sensex too has had a brush with the 32000 mark twice before it decided to stay above it for some time. Every day different companies are touching their 52-week highs; even the duds which you never knew existed are being called chartbusters.

It’s a mercy that such thing never happens in the music industry. Those of you who like to follow Economy and Finance through TV channels and various media forms may have heard that the market is in the “Over-heated” range. Knowledgeable people are becoming cautious; some are booking their profits and taking the money off the table.

Every morning, I am being asked the same thing- What Are You Doing in the current market situation?

The question specifically pertains to me as, I am held responsible for initiating over 500 colleagues and friends, directly and indirectly planning their Financial future and Independence, over the past 25 years.

The answer however that I give does not satisfy many of the colleagues and they feel that I am hiding something and not giving some kind of a mantra.

What Are You Doing in the current market situation?- They ask!

Nothing –I reply! Absolutely nothing!

As most of my known people are aware – mine is a very unique and not a very enviable or “followable “- position.

I am about to be a 53 male- about to complete 3 years into retirement. I have no salary, income, pension, insurance, Ulip –Nothing. I just have a very primitive version of a health plan and a critical illness plan which would expire in another 10 years. So am I expected to, be doing in the current market situation?

Nothing. I just have a very primitive version of a health plan and a critical illness plan which would expire in another 10 years. So am I expected to, be doing in the current market situation?

So am I expected to, be doing in the current market situation?

Some people suggest that you could book your profit and wait for a lower level to re-invest.

Some suggest to entirely sell my mutual fund holding as this is the maximum that the market will ever get to.

Some knowledgeable people even suggest going into day trading of shares.

I would be very frank with you; I have always been a passive investor. There was a time when I claimed to be very knowledgeable about different stocks and I dabbled in them on a daily basis. However, very soon good sense prevailed and I thought that this was not what I was trained for. My core competency lies somewhere else and I must concentrate on my profession.

(I always hated professionals discussing stocks instead of their core knowledge. Discussing the Economy in a healthy way is fine, but talking about stock prices from the point of view of the frugal knowledge that they claim to possess, is pathetic).

From there on I started shifting my focus entirely onto Mutual Funds. I understood the dynamics of MF management quite early and was reasonably happy that the Fund Manager was able to give a double digit- tax-free return even in those days of double digit inflation. The engineer’s sense taught me that if I could “confidently” mobilize all my savings in this route- I could have a winner on my hands.

Such was my faith in the market that during the onslaught of 2008- I exposed myself completely into equity funds. My confidence of course came from the fact that I was working and earning.

So I can safely say – that even at that time I was doing nothing and even today I am doing nothing. That time I had the savings from the salary so I was mechanically investing with scant regard to the market situation. Even today I am staying invested with scant regard to the market situation.

That time I had the savings from the salary so I was mechanically investing with scant regard to the market situation. Even today I am staying invested with scant regard to the market situation. Yes, I need some money for my sustenance, travel bug and other social activities that I am attached with. For that, I redeem from my holdings a decent sum that can last me for about 4-6 months. Yes due to the run-up in the market the equity allocation had climbed up by 8-9% which I had shifted back to Debt- Gilt and Liquid schemes, bringing back the allocation to 80:20.

Some analysts may call a 80:20 allocation as too aggressive, but I don’t agree with that. Given my relatively premature retirement age and my spouse being even younger- I need my savings to at least last till the grave.

It is important to realize the fundamentals. We should not invest in shares of different companies or Mutual Funds based on the news that you hear. We should invest on our perception of our country and the faith in our Economy. Not even our perception of the government.

If we have decided to settle in this country, bought homes, property, and other fixed assets; we have done so with an eye fixed on the future of our country (Otherwise why are all our neighbors trying to make a beeline for US and UK?). Having decided (objectively and not just emotionally) to stay in our own country – now it should be the automatic next step to be a partner in its progress and gain out of it.

Of course, the automatic next step can be by keeping this money in bank deposits where you are taxed on the Interest Income or other Government mandated schemes (most which you are disallowed as NRIs). Another rational and objective choice can be to invest in Equity based instruments like Mutual Funds and actively see how you are performing vis-s-vis the progress of the country.

So don’t check on the Sensex every day. Behave like RIP Van Winkle. As long as you are working and earning – just keep investing the way you have learned. Follow laws of the land by paying taxes where and when required and keeping your documents updated. Don’t try to live in the India of 1990 and expect to have facilities like the US in 2017. Today the world is truly getting unified. Most of the rules/laws will become universal in all countries. The FATCA/CRS form is just the beginning.

You may also like to read – The Financially Illiterate Mariner – Are You One Of Them?

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

What Am I Doing In This Market Situation? appeared first on Marine Insight - The Maritime Industry Guide

Like all financial products, Mutual Funds too have an intermediary who connects an investor to the Asset Management Company by way of different schemes.

Right from the advent of Private Mutual Funds in the early 90’s they helped in the selection of funds (which was not a big task those days, as the number of funds was a lot less), filling up the form(s) and doing the leg work. Even though the distributors were not too familiar or educated in Financial Planning, they did a reasonably good job for the money that they were being provided by the AMC as an incentive.

The hey days were those of 2.25% entry load and almost 2% exit load, so the distributors were a happy lot with trailing commission of the investments flowing in as long as the investment was there.

This model of commission was in line with that of the LIC agents – whose commissions were intact.

Then in the August of 2007, a benevolent SEBI chairman scrapped the Entry load and the MF schemes suddenly became cheaper. Further on the exit load became less and the further squeeze on the commissions.

However, the trailing format of the commissions still stays on even though it has come down drastically to about 0.6% for equity and to about 0.12% for debt funds.

But what does TRAILING mean?

It means that if you made a modest investment of Rs.1.0 lac in the year 2000 and it has grown to Rs. 10 lac today- then your distributor will get the appropriate commission for each and every year to date on not only the original investment but any successive purchases that you had made. This was a price for keeping you invested and I fully support it because most of the investors need that guidance and motivation from the distributor.

1.But what is their relevance today?
2.Do we need them with the Direct Schemes that the MF companies have launched parallel to each “normal” retail scheme?
3. How safe are these distributors with regards to trusting our money with them?
4.What service are they really providing us with in these times of net transactions?
5. Finally! Can I have a mid way between the Normal Retail Plan and Direct Plan, so that I can pay what is the relevant remuneration for the service?

I feel that I am somewhat qualified to answer this question for two reasons:
1. I had always invested through a MF advisor/distributor for the entire period of my earning and investing life.
2. Though I spread awareness about investment and personal planning, I am not beneficially or gainfully connected with any person or entity who has a business interest in Mutual Funds or any element of Personal Financial Planning.

The Mutual Fund Distributor: is still very relevant today, especially for a new investor and especially for the Seafarers, but only if he is a certified ADVISOR or a DISTRIBUTOR by the SEBI. He should also have an AMFI certification and his “own” ARN NO. Some distributors act as “sub brokers” to the main distributor on some commission sharing basis. These should be avoided as they are not qualified or experienced enough to guide an investor.
I feel that when one starts investing by way of Mutual Fund, one needs to learn a lot of nitty gritty which otherwise he may learn at his own cost…and what is more… an enormous opportunity cost.

It simply isn’t easy to select a good fund with LOOOONG term view. A good advisor/distributor can help you with that.
There are over 1800 Mutual Fund schemes to select from 48 AMCs. For a direct and that too a first time investor this can be a mammoth and a daunting task.
Hence starting off with an A/D is a good and certainly recommended idea. Yes, there comes a time in 3-4 years, in which if you have taken an active interest and your portfolio has satisfactorily progressed- then you may consider going Direct.

However, my experience with fellow investors is that once they start getting good returns from their MF investments and good advice from the A/D, they prefer to stick with him, as the feeling that a small timely advice has saved them lakhs and even a crore at times.

A question you may ask here- How do you know if my distributor of Advisor is genuine or not; or if he is acting in my interest.
Answer: Check your portfolio. If your A/D has ever enticed you to invest in a Closed ended Fund, NFO at the peak of a bull run (because such funds never come in the down turn times). Further on if your share in such funds is actually quite high… then you have all the reason of knowing that the scheme was sold to you for his 4% upfront commission and even attractive trails.

{However you can also kick yourself for not reading my e-book available for free from marineinsight.com :)}.

Answering the Third question is much easier. A Mutual Fund scheme is a contract between you and the MF AMC. The A/D is just a conduit to have connected you to the right scheme or not. He will fill your forms, get your KYC done and kick-start your investment. If you have issued a cheque from your designated account in favor of the MF scheme- even a fly cannot hurt your investments- you are 100% safe.

Mutual Funds are so heavily regulated and hence safe that even you will not be able to invest from an account which is not connected with that particular Portfolio.

The Fourth Question is about their service which they (A/D) provide outside of what we can get on the net.
As you have seen quite often on the net, the amount of information is mind boggling. If Financial Management is not your profession, chances are that you will never get the info which is relevant to you.

An A/D helps you with the precise info and services that you may need.

There is also an element of hidden knowledge. The A/D keep meeting with the Fund Managers of most of the AMCs at various seminars arranged for them for their education enhancement. At these seminars the Fund Managers and even the CIOs/MDs of the AMC discuss long term views of their funds. In addition the A/D gets personal messages and alerts in case government changes or is about to change a policy. This information can be made available to you in good time to benefit.
The final question being if you can find a mid way between going for Retail Plan and paying commission or losing out by going for direct plans.

Yes there can be a mid way- Ask your distributor to go for a Direct plan and set up a commission model with him. Since he gets only 0.60% as trailing commission (that is if your investments continue for the entire year), you can set up a different model which can be beneficial to you and him. I am sure with the great ingenuity that the Indians are blessed with, you will be able to find a good middle road.

I do not think any more queries would remain after this article.
In case you have then post a query here or send me an email on kaushik.the.idiot@gmail.com .

You may also like to read – The Financially Illiterate Mariner – Are You One Of Them?

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

Case of a Mutual Fund Advisor/Distributor appeared first on Marine Insight - The Maritime Industry Guide

Most of the people to whom my articles are normally directed at are seafarers, NRIs and HNIs or high net-worth individuals. However this may have to do with everyone who would care to read.

Normally it is very awkward for a middle-aged male like me to stand up for the modern methods which everyone vouchsafes to be unsafe and full of risks. There is a very high level IT professional in UK whom I know (having a doctorate in Computer Science). He operates with conventional methods and does not access his bank account except by a ATM card. He may be aware of a few things that we are not aware of, however we will continue with our discussion.

Electronic Communication

There are stories galore how in past years people lost admission to prestigious colleges, or employment or a large investment opportunity because they did not get the required letter in time for whatever reason.

Nowadays it is rare to find anyone without an email address. It is in order too, as written communication has reached mind boggling speed and hence expedited the inter-personal and official transactions. Even the government offices have adopted email for official medium of transfer of information to individual stakeholders e.g. interview letters, appointment letters. Admit cards and results are freely being communicated through emails and SMS.

All this not only brings speed to our communication but also saves natural resources like trees for paper and fossil fuel for means of transportation which would otherwise be required to support the snail mail system of communication.

However the reason why I would like to support eCommunication is something else, in addition to ensuring that you receive your correspondence.

Privacy: Letters and other Official documents are open to breach of privacy especially in today’s colony based culture of row- houses or apartments. I have witnessed people complaining how their letters are being regularly opened and again sealed back.

At times few missing letters from the bank may be sufficient to reveal your financial position and liability to unscrupulous elements. I have witnessed a case where the perpetrators / kidnappers came to know about the amount in the bank account from a Bank Statement passed on by the Postman.

Statement of Account: Statement of a Bank account does not only reveals your bank balance, but a few other personal details about you like PAN number, email address, nomination etc.

While the Statement of bank account gives out your immediate financial position, SOA of your DEMAT account and Mutual Funds are even worse. They can give out your total financial standing of your life-long savings to people. The scenario is indeed scary as it gives a sense of violation.

Primary and secondary system of email: It is also a relatively common complain that a person’s email has been hacked. To this I had come up with an idea of Primary and a Secondary system of email.

With this system there is a central email address e.g.yourname@gmail.com. This ID is never publicized or given to anyone except family members. Now you can create few other SECONDARY email addresses for various purposes. 1 email ID for your bank, 1 for your MFs and demat account, 1 for public domains like promotions and 1 for your employer etc. Next step is to install a email client like Outlook, Eudora etc. on your PC. Laptop or Tab and have all the above accounts on the same client for receiving emails. For sending emails you can individually select the email id from which the email is to go out.

Second method is to go individually to the particular POP mail site and the email account and create the FORWARDING to your Primary email address, which was yourname@gmail.com .

In this way your individual email addresses will not be known by entities who should not know that address and you will also be able to know if a particular email address has been breached.

This will also deal with the data theft of email address that has become prevalent nowadays with employees of banks, insurance companies resigning and carrying away the data with them to be misused later.

Conclusion

• Always opt for online statement of account of banks, Demat services, Mutual funds, Insurance companies etc.
• Have individual email IDs for individual uses and have them redirected to your unique central account.
• Relying completely on emails will not only enable you to receive and organise them systematically but also keep a record for an extended period of time.

Electronic Transactions

Most of the Seafarers and expatriates have their salaries remitted to a bank’s savings account. This is even today done by depositing cheques in the accounts and the money lies there for a few days to few weeks till you can access the account or issue a cheque on it. It is seen that there is always a week or two delay between the money coming to the account and be invested further. Sometimes this delay can be of months too.

Considering even a 10-15 days delay with 7-8 months for seafarers and 12 months for other individuals, there is a huge opportunity cost involved and wasted. Even if you were to use the money for opening a fixed deposit this gets delayed by 80-120 days for that amount. If the purpose is for investing in MFs or stocks, the loss in opportunity cost is huge.

I have always gained because of the electronic transactions. One such instance I distinctly remember. I saw that it was the last day of the higher interest rate of the bank which they had hiked only for 15 days in 2012 to attract NRE deposits. They obviously do not inform you. So while I was on ship, I could open FDs online and gain by locking into a higher interest rate for a very long time. Similarly, I have gained umpteen times by investing online in case of large crashes of the market while being on board the ship.

Hence it is definitely in order that you opt for Internet transactions. Opt for i-transactions for your bank accounts, mutual fund investments, access to demat account even if you are not interested in the online sale-purchase of stocks.

Also opt for DCB (Direct credit to bank) of your Mutual fund redemptions, share-dividends, insurance paybacks and proceeds and any other source from where you receive or liable to receive funds.

In India, at least the central bank called RBI is making compulsory to opt for electronic transfers.

You may be surprised that the amount of unclaimed dividends and bonuses in the capital market is so large that the government body called SEBI has formed a Investor’s Education and Protection fund.

Similarly, unclaimed amount from PPF and Employees Provident Fund is well into over Rs. 100 billion.

All this is due to poor record keeping by individuals on their personal record keeping. Most of the time reason is also that when the depositor dies the surviving members of the family has no idea about the financial products that the deceased had invested or saved in.

Similar case is with insurance policies. Due to poor education of the family members, the only time the money is required is when the Insured Person is dead. After him mostly there is no one to inform the family as to what they should do.

Few cases have come to my personal attention where after the person had passed away, the family could not file a claim as they could not get their hands on the policy documents. The agent did not inform them since he is supposed to be paid by the company. The company was not pleased when I sent them to file their claim after 3 years.

Now there are custodians nominated by government who can do the safekeeping of your Insurance documents in a demat way, just like your shares. But for that you must inform your family.

Conclusion and takeaways:

1. Opt for electronic fund transfers and internet transactions in your financial dealings.
2. Keep a record of all your investments in one place.
3. Opt for Direct Credit to bank of ALL your redemptions, sales, dividends, bonuses.
4. Opt for SMS information also which is available freely nowadays.
5. Keep an electronic record of your insurances.
6. Invest in a good antivirus/malware software.
7. Keep changing your passwords regularly.

You may also like to read – Financial Planning: Long Term Capital Gain (LTCG) Tax And Life After That

Disclaimer: The author of the article is a Chief Engineer from the Merchant Navy and has no formal qualification in Financial Planning. Views expressed are based on his own experience and that of others who have benefitted with his help. He may be reached through mail here. You can also join the discussion at the forums here. The author shall not warrant or assume any legal liability or responsibility for the accuracy, completeness or usefulness of any information provided herein.

Note: It is difficult to track things in a single country like India which is so huge and complex. To say that I can advise you for all the countries, whose readers are reading these articles- would be a big lie. I am not acting as your financial advisor. Due to my exposure to different geographical conditions, I have found these products which can be used by us –the hapless Seafarers. The names and methodology of these products may differ from country to country.

Hence my earnest request to you is to please use the power of the internet and find out these products in your country. They are common products and mostly available all over the world. If you find they are named differently in your country, please inform me in the comments that you are so kindly making. It will help us to spread awareness and enhance your own knowledge about your future planning.

Financial Planning For Seafarers: Importance Of Electronic Communication appeared first on Marine Insight - The Maritime Industry Guide

If you are a seafarer (and especially living in India), you may have been quite surprised by the cacophony that a few Mutual Funds (MF) companies and AMFI (Association of Mutual Funds of India) have been created by a plethora of ads in recent months.

The concept of SIP or Systematic Investment Plan has been around for quite some time and was used sparingly by only a few people who were aware of the same. As it usually happens, the very few who understand the concept and the underlying calculations of a systematic plan of investment have gained in the past.

SIP works as a simple concept, by way of which a fixed amount is deducted from your bank account and deposited with the AMC (Mutual Fund Company) to buy units of a Debt or Equity fund. Depending upon the NAV of that day units are credited to your Folio. This works fine for everyone in most cases and gives good returns to those who carry their SIPs through Bull and Bear cycles which means ups and downs of the stock market for a large number of years.

As a Seafarer dedicated to financial planning, I found a few practical difficulties for Seafarers while using SIP :

Firstly you must remember that as a seafarer you have far more investible funds than your shore counterpart. This means that you should have more opportunities to invest and should take more precautions and steps to put your FULL money to FULL use. No money should lie idle anywhere. Even the uncertainties like medical emergencies should be properly quantified and provisioned for. Since we are, by the help of these articles, trying to earn maximum in lesser number of years, we cannot and should not waste money and opportunity of getting a higher return.

Less spreading of investment across time frame: Usually the MF companies offer only monthly SIPs, which means you will be able to purchase only once a month. This means that the day you buy the market may be on a high or on a low or may be a mean. This deprives you of an opportunity to divide your money and buy at more number of times in a month.

Confusion: I also tried setting up 5 SIP’s for the same fund, 1 for every week. This may work fine but it will leave you with a problem of checking your bank account for debiting and your MF Folio for crediting of the amount as there is a small chance of a money transfer getting haywire. Add to this 3 or 4 more funds that you may also start your SIPs into. As you can see that will be quite a large no of transaction to track.

Risk of Bank Balance Running Low: You may have planned some important expenses from your bank account which could be 1 or 2 months away while you are on board. With the SIPs eating away the balance, you will always be scared of not having enough money for the expenses- planned or non-planned.

Difficulty in Stopping a SIP: It has been practically experienced by me that if you wish to stop a SIP for some reason, it takes more than a month and sometimes even 3 months to stop it after giving an application. Also in your schemes of things you may not be able to give that application if you and your spouse are on board. This can be an indeed a difficult situation. With some AMCs, if your SIP was started manually (in offline mode), you will not be able to stop it even if you have online access.

However, there is another concept similar to SIP, which is called STP or Systematic Transfer Plan.

STP or SYSTEMATIC TRANSFER PLAN

Is a process similar to SIP but in this a lump sum is deposited in a debt fund (or can be a equity fund too but is not advised) at one time and a timed transfer of fixed amount can be started from the Debt fund into 1 or more no. of Equity funds. The debt fund selected is usually a Liquid fund or Money market fund since it does not have any entry or exit load.

ADVANTAGES OF STP OVER A SIP

1. Once your Folio has been generated (through an agent or bank) , you can start the STP into the Equity fund of your choice in the Direct mode. This means, that you will not be paying any commission to anyone and your returns will be higher by about 1% p.a.

2. The number of purchases into the Equity fund from your Debt fund can be more than one, i.e. weekly.

3. The no of STPs from the Debt Fund can be started into more no. of Equity funds without creating much confusion. As I have mentioned earlier there will be a real confusion if you wish to set up weekly SIPs if you find more than 1 fund worth investing in the same AMC.

4. Full utilisation of your Salary: Instead of keeping your 2-3 month’s salary in a NRE savings account at pittance interest waiting for investment opportunity or expenses. You can actually keep 1 to 2 months of expenses only in your savings account and move rest of the salary into a Debt fund of any one or more than one AMC. Now from these Debt funds the small investing amounts that you have decided keeps flowing into the Equity funds of your choice every week. The remaining amount will keep earning a higher “return” than the rate of interest it would have earned in a NRE savings or NRE FD.

5. Easy Termination of STPs : In case you need the money for your use, or you feel that the Equity funds have stopped performing well and you wish to stop and watch future performance. All you have to do is simply stop the STP on the AMC website or simply redeem the complete Debt fund. The very next day the money will reach into your bank account and the STP will automatically be stopped when 3 STPs will not be taking place.

6. Easy Re-Starting of STP: In case you again have funds , e.g. you have gone back on board and your spouse is with you. In such cases I have seen that the salary keeps on accumulating in the infamous (for me) bank account. However in our case all you need to do is just transfer your salary in one or more than on Debt fund and … voila!!! Your STPs will automatically start if it has been less than 3 months. If it has been more than 3 months, it will take you less than 5 minutes to visit the website of the Mutual Fund and start fresh STP. Even if you do not want to start a STP, the funds will keep earning a higher return than in your savings account. In fact the return will be slightly higher than a bank FD, with the advantage of taking your money out anytime without being penalised.

Important: You will find that when you are investing as a NRI, for every STP , there is a certain TDS taking place. i.e. if you mandated a STP of Rs.25000 from your Debt Fund to Equity fund, you will notice that the amount finally buying Equity funds is about 24940 or 24800 or maybe even less. DO NOT be alarmed. This is a legal tax deduction (TDS) taking place because your Rs.25000 have actually appreciated and whatever is the appreciated amount 33% of that has been deducted because you are a NRI. This may be claimed back in your tax return.

If you are a resident, the tax on the Capital appreciation is STILL DUE, but is not deducted. You are still required to pay it when the tax payment is due before 31^st March.

In addition, Debt funds in general, have the advantage of being redeemed (or Sold ) on Day 1 and the amount being received in your bank account the very next day.

Hence, as you can see, not every tool offered by the companies is the best for you. However we should be able to recognise our limitations and those that our employment imposes on us. Once we recognise and understand those, we can easily find way around those limitations, just as we find ways to work around some challenges on board when any one equipment goes out of commission.

Long term STP will enable you to generate a much higher return than a SIP because here your ENTIRE salary is earning to it’s maximum- most of it in debt and little by little in the Equity. This return will be higher despite paying the TDS.

The type of Debt fund that I would suggest for you to invest as the parent fund for your STPs are Liquid Funds, Money Market funds or Gilt funds. None of these have any exit load and their selection solely depends upon the Fund house whose equity funds you have decided to invest in.

Happy Investing!!!

Note: It is difficult to track things in a single country like India which is so huge and complex. To say that I can advise you for all the countries, whose readers are reading these articles- would be a big lie. I am not acting as your financial advisor. Due to my exposure to different geographical conditions, I have found these products which can be used by us –the hapless Seafarers. The names and methodology of these products may differ from country to country.

Hence my earnest request to you is to please use the power of the internet and find out these products in your country. They are common products and mostly available all over the world. If you find they are named differently in your country, please inform me in the comments that you are so kindly making. It will help us to spread awareness and enhance your own knowledge about your future planning.

Financial Planning: Why SIP May Not Be Such a Good Idea for Seafarers appeared first on Marine Insight - The Maritime Industry Guide

This is the seventh article in the personal financial planning for seafarers series by the very experienced Chief Engineer Rajeeve Kaushik. You can read the previous articles of the series here – Importance of Financial Planning for Seafarers  , 10 Common Financial Mistakes Seafarers Make ,  Little Know Facts About Magic Of Savings Seafarers Should Know , 4 Types of Investments That Kill Seafarers’ Hard Earned Money , Insurance- What Seafarers Must Know Before Purchasing, Savings and Investments For Seafarers – Getting Started 

Before starting I wish to inform seafarers that it is important for them to understand the concepts of financial planning not only to know where the money is going when they save or invest in a particular avenue but also to prevent themselves from getting distracted by colleagues or various sales personnel.

In this context and very much relevant is the world of MUTUAL FUNDS.

Why am I calling it a SECRET? Because that is exactly the way most of the finance related people are treating this avenue. By far this avenue is the most well controlled, diversified and risk adjusted. Most of the pension funds are run on this basis, but very little information was shared openly. The whole business of PMS (Portfolio Management Schemes) would collapse if everyone started investing through MFs

Let us first know WHAT is a MUTUAL FUND?

It is simply a collection of a people pooling their money together with a company which in turn buys from the market securities in keeping with the philosophy already laid and spelled out.

Broadly MUTUAL FUNDS are of two types:

1. DEBT MUTUAL FUNDS

2. EQUITY MUTUAL FUND

Debt Mutual Fund (also called FIXED RETURN FUNDS) loan the money to the Government of the country and Companies. Since this loan is given at a fixed rate of interest – whatever is the rise in value of that loan instrument- it is reflected in the price of ONE UNIT of that MF which is called NAV.

EQUITY MUTUAL FUND invests the money that it collects, in shares or stocks of companies and whatever is the profit on the shares everyday is reflected in the price of that MF (mutual fund). This price is also called NAV (or NET ASSET VALUE).

Debt MFs are of a lot of types and require some knowledge before investing. In India these type of funds have lost some attractiveness because they are now taxed like bank deposits. In due course I will familiarize you with those that are most relevant to us as seafarers. e.g. in the 3^rd article I introduced you to LIQUID FUNDS , which are also type of Debt Funds.

Equity Funds are the ones that should be of most interest to us, because they are the ones that will enable our income to grow over a long time (even as much as 20 years). As I said earlier, once a company called AMC (or ASSET MANAGEMENT COMPANY) proposes to form a particular type of fund it will advertise and collect money from the people and then issue units of a certain face value (mostly INR10 or $10 in other countries).

With that money now this AMC will proceed to buy shares of companies of different sectors e.g. Finance, Technology,Petro,Auto,Engineering etc. Now as the country progresses these companies will also grow and so will their share prices. This will automatically reflect in the NAV of the fund which will start growing up from Rs.10 or $10 steadily. Of course it will fall too, whenever the market will fall due to thousands of reasons- but there are reasons that will keep discussing and you will keep asking – because of which the NAV will definitely rise over the long horizon of 5 to 10 to 20 years. e.g. a Fund called HDFC Equity Fund in India was started in Jan 1995 and the units were issued for Rs.10. After 20 years the NAV of this fund has grown to Rs.490. Even if you calculate in US$ terms and taking into account the depreciation of the Indian Rupee, the fund has grown by almost 160 times or 16000%.

This is what I meant as COMPOUNDING in the 4^th article.

Now the question that you must ask is that if a fund has collected money in a particular year or at a particular time when you were at sea how will you benefit. It is a very intelligent question and must be answered.

Most of the funds are OPEN ENDED funds which means that they never expire or mature. After the fund is started initially by collecting money and issuing UNITS at the initial NAV of Rs.10 or $10, it will again REOPEN to collect more money from the same or different investors. This process will be an ongoing process and you can buy more units everyday, everyweek or every month. Of course the price or NAV at which you will get the units will be different every time because of the value of the fund. This is the basic advantage of investing regularly over a long period of time.

In future, I will suggest strategies by which, you will be able to continue investing regularly every week or every month even when you are at sea and have no access to the net facilities or when at leave when you are not getting any salary. But first we must discuss WHY is it necessary to invest in regular steps, THAN as a lump sum.

For example you have 3 lacs (3,00,000 rupees) to invest and you have invested all of them at one go in 1 or more than one funds.

Since the Equity funds are dependent on the share market which is changing everyday; it may so happen that after you by the market starts going down and keeps going down for the next 6 months or one year (this is called a Bear Market run). Now you will start feeling insecure and with everyone around you telling you about doomsday, you might panic and sell off your investment of Rs.3,00,000 at a loss at say Rs. 50,000 . After this you will never look at the MFs or share market again.

Now let us see this situation in numbers:

e.g.On 1^st Jan 201X at a NAV of Rs.20 number of units bought = 3,00,000/ 20=15,000 units.

Now let us take an example that you decided to invest Rs.25,000 every Month, since the NAV is daily changing with the market it will look something like this

As you can see by spreading your investment to 12 steps you have gained 150067.920-15000= 67.920 units. If you sold on the last day of Dec, you would have gained 67.920*22= 1494.24.

This is called SYSTEMATIC INVESTING and in a volatile market it works best towards the advantage of the investor. In a favourable situation the difference in returns from a SYSTEMATIC INVESTMENT and a DIRECT one timeinvestment can be as much as double. However there are more advantages that are hidden:

• Ready availability of your money: The funds that are still not invested are available to you in a useable liquid form. Even though the money that you have invested in Equity MFs are quite liquid , but let us assume after your buying the market starts going down so you do not have to really sell because you have no other money left for consumption.
• Market going down works in your favour: This is the best part; that makes you happy when everyone is crying doomsday. When you buy MFs during a going down market, you get more units for the same money when the market moves down. Since you have not invested full money at one go, you are the king during a market going down.
• Peace of mind at all times: Since you still have money with you for investment, you are not in a state of anxiety because the market is going down. Remember everything that goes down has to come up, but by then you should have bought at low prices.
• Ease of Investment: You do not need to open any demat accounts (even though if you have a DEMAT account you can buy through the demat route). After your KYC is done, you can start investing.
• Ease of record keeping: You do not have to keep a track of 20 stocks or research into them before buying. There is no need to keep any paperwork, since there are foolproof record-keeping. Also there are established ways of knowing your latest value of the fund everyday.
• Ease of Selection: It is much easier to select a MF on the basis of its various characteristics. Unlike DIRECT STOCKS, where you need a lot of expertise in selection of stocks. In case of a MF by buying into a DIVERSIFIED EQUITY MF you buy into 30-50 companies which you may otherwise find difficult to do. This feature of the MFs is their greatest advantage which cannot be outperformed by the best of advisors.
• Professional Management: For a small management charges which are not evident to you but are paid out of the corpus, you get the best service and advice from the Best Professionals in the industry.

SO with all these things in mind you can prepare yourselves to invest in MFs for a very very long term. It is this class of investments that will ensure that your money grows against all odds and stands you in good stead.

However out of my experience I have developed few steps which ideally must be adhered to and my colleagues who follow my advice call it the SEVEN GOLDEN RULES:

1. NEVER INVEST IN A NFO (New Fund Offer): This is first rule and it means that you must never invest in a new MF which is being offered to you for Rs.10 or $10.This is because at this stage the AMC has not purchased anything and has no assets.
2. INVEST IN A GOOD TRACK RECORD: The fund that you invest must ideally be at least 5 years old. Even if the fund has not been a top performer, if it has managed to be in the Top Quartile (Top 25% of the funds), it is sufficient.
3. INVEST IN A DIVERSIFIED EQUITY FUND AND NOT SECTOR FUNDS: This means that the fund that you invest in must have a selection of companies that cover the entire economy. Do not try to invest in Funds dedicated to Banking, Petro, Finance alone. The reason being that if at a particular time due to some Geo Political reason a particular industry suffers (like shipping and oil at this time), you may suffer long term losses. A well diversified fund will have a selection from all sectors of the economy which will try to balance each other during any adverse economic situation, giving you a median return.
4. APPLY AS AN EXPATRIATE or NRI : This is specially applicable to us, the seafarers because by this mode you will be able to take your money out of the country in case you wish to pursue your higher education outside the country, take your competency exams in UK, Singapore etc.or even at a later stage wish to take up a Shore Job in some country. In Russia you are allowed to invest in MFs in USD itself. This is not possible in Sri Lanka, Philippines and India where you have to invest in the local currency. This is the best feature of MFs. In India this will be possible only if you invest it out of your NRE account.
5. FILL UP THE APPLICATION FORM CORRECTLY: This looks easy but you will be surprised how many people never fill up the form on their own and the MF advisor/agent skips details like email address, Phone No. or the correct bank account type. The email address and mobile no. will enable you to get record of each transaction. In India simply by mentioning the email address, it is possible to download the entire portfolio of MFs however old it maybe- in a single page.
6. OPT FOR DIRECT CREDIT TO BANK (DCB) MODE: This means that when you sell or REDEEM your fund or part of it, the proceeds will be sent directly to your bank account and not by cheque to home address. This will not only ensure faster receipt of your money even if you are at Sea and no one is at home. In today’s times and especially for seafarers this is a very safe mode since you can do the selling while on board.
7. OPT FOR SECOND APPLICANT/NOMINATION: This is true for most of the financial products and bank accounts. With a life as risky as ours, it will only be helpful that our survivors whom we NOMINATE get the funds in case of a mishap. A SECOND APPLICANT will ensure that any paper work if required can be done while you are at sea. Apply on Either OR Survivor basis.

As you can see at this stage itself , that MFs provide you with a well intentioned, risk diversified and simple method of investment. Now our job is to understand and find the information about investing in MFs. We have to shortlist certain No. of funds to suit our requirements and also develop strategies for investing so as to extract maximum out of our earnings.

This we will do in our next article. SO far there is some homework that I wish that you do.

First, read all the previous 6 articles, which have led us to Mutual Funds as the convenient and preferred means of investment.

Secondly, for your respective countries try to search for Equity Mutual Funds through “ Google”. E.g. type Mutual Funds in Philippines, or Sri Lanka, India etc. This will prove to be the most valuable and profitable search that you ever made since the times of Columbus.

HAPPY LEARNING and HAPPY INVESTING

Disclaimer: Author is a Chief Engineer from the Merchant Navy and has no formal qualification in Financial Planning. Views expressed are based on his own experience and that of others who have benefitted with his help. He may be reached at the forums. The author and Marine Insight shall not warrant or assume any legal liability or responsibility for the accuracy, completeness or usefulness of any information provided herein

7 Secrets Seafarers Should Know About Mutual Funds appeared first on Marine Insight - The Maritime Industry Guide

So far in the last 5 articles I have taken you through the maze of Financial World and tried to familiarise you with the various aspects of the same; just the way you are taken for a familiarisation round, when you join the ship.
aceace

Even if you join a new ship for the umpteenth time, you will always be taken for the familiarisation- similarly, if you are dabbling in various savings and investments plans, you will do well to read the previous FIVE articles before proceeding with this one.

Here’re links to previous articles: – Importance of Financial Planning for Seafarers  , 10 Common Financial Mistakes Seafarers Make ,  Little Know Facts About Magic Of Savings Seafarers Should Know , 4 Types of Investments That Kill Seafarers’ Hard Earned Money & Insurance – What Seafarers Must Know Before Purchasing. 

Now let’s get on with savings and investments..

What are Savings and what do we mean by investments? We keep hearing the two terms interchangeably; does it mean both are same?

It took me quite a while to learn to differentiate between the two and had to form a definition of my own for the purpose of explaining to my daughter and other colleagues whom I had introduced to finance. Once again, this definition may not exist in any book.

When you keep a part of your earnings (or pocket money from your parents) and keep it away in a piggy bank, proper bank, under the mattress or in the backyard under the apple tree – it is called SAVINGS. It may earn some fixed interest or it may not, but it will still be called Saving.

Money does not change its form and largely remains in the same currency till you decide to exchange it. Savings are usually risk-free but offers very little by way of increase, may not be tax efficient and WILL NEVER keep up with the inflation. This means, that the real value of your money will always come down with time and in the long term.

When seafarers buy shares, land, flat, house, gold or give it to someone for business as a loan with a promise of share of his profits (whether he gives it to you or not is entirely different question)- the currency immediately changes form and takes the form of ASSET that they have purchased. This is called INVESTMENT. The value of this investment can remain same, go down or increase infinitely. All these avenues and many more are called INVESTMENTS.

So to start with, it should be clear that we have to split our limited money between both Savings and Investment. In my earlier articles, I explained about schemes where money is destroyed because of low returns. But since there is always an inherent risk with ALL types of investments, we have to wisely split our earnings between Savings and Investments.

In investments, we will slowly learn that we will have to spread our money across all sectors i.e. Real Estate, Shares or Mutual Funds, Gold and any other asset that you may learn about later on.

About savings, I have already discussed enough about utilising your money and putting it in the most efficient avenue where you can get a relative interest rate, be safe and tax efficient.

We shall elaborate more on investments now.

Once the money has been earned you may first save it and then channelize it for your investments.

I shall first discuss about Shares and Capital market Investments, because this is the most popular but risky form of investment. However it is a necessary avenue and if we understand it well and look for the right way to move, it will prove to be the best friend for you.

INVESTMENTS- IN COMPANIES

This will form the most important chapter of the series where we will start to discuss the maze “out there” which is called Investments. Those who are already familiar with this field may also continue reading as there is bound to be some useful information for them.

A country is dependent upon its infrastructure and facilities that it can offer. This is the reason that we treat the western countries as advanced and also feel the comfort and convenience as our country develops and progresses.

This infrastructure and facilities in terms of material resources and benefits such as Banking, Petro products, Health facilities and medicines, Capital or Industrial goods, Consumer goods and all other things not covered by the list are provided by companies which are either Public Sector(Government owned) or Privately controlled or Private Sector. When the public sector company needs money to manufacture or any other need, Government simply takes a portion out of the taxes which citizens pay and gives it to the Public Sector Company calling it- it’s own money. It can also go the way as described next of the private companies.

If a Private Limited Company needs money it can raise it in quite a few ways:

1. Taking Private Loans: these can be taken from Private money lenders or Financial Institutions like IFCI, IDBI and Mutual Fund companies which have special funds for lending which will give it to them on a certain fixed rate of interest, depending upon the term and risk profile of the company.
2. Company Fixed Deposits: Like Bank fixed deposits the companies issue fixed deposits which are not secured by anyone except the reputation of the company. Hence obviously the lesser known or risky companies will offer a rate of interest which is higher than safer companies.
3. Debentures: These are also of various categories and offer a fixed rate of interest to the investor. This rate of interest may be more than the bank but is taxable and not always open for the NRIs or expatriates.
4. Shares: Are the most popular form of raising capital by a company and are also most liquid and most risky as in common language. By buying a share of any company the person becomes an investor and also a shareholder in that company, howsoever small maybe his quantity of shares.

Why it was important to mention, the above 4 instruments (though there are some more) is because each of them will directly or indirectly form an element of our investment philosophy.

When and if a company goes bankrupt, the cash realised after selling the company, it is paid off in the above sequence of priority i.e. the creditors are paid first, FDs next, Debentures next and finally if anything remains is paid off to the shareholders. This is because the shareholders are the partners in business with the owners (who are called Promoters after a company goes public).

This is also to explain to you the seriousness of the investments that you get into when you buy any of the above, since with the facility of internet now you can buy anything anywhere anytime, provided you are allowed to do that by law.

SHARES STOCKS AND CAPITAL MARKET

Shares of any company can be purchased at two times. One is as a IPO (Initial Public Offer) when a company goes public for first time. At this time the share of Rs.10 face value will have a certain premium attached to it. Whatever no. of shares that you apply for, you may not be allotted. You may land up receiving less than your requested amount and maybe none at all.

Once the IPO closes within 1 month the company gets LISTED on one or more exchanges. The most common being NSE and BSE in India, which I am sure you know about. Similar exchanges exist in all countries.

After the company is listed on an exchange you can walk up to any share broker, capital division of your bank or online services of a number of finance companies – and buy any no. of shares of any no. of companies. You will only be required to open a Demat account and a Trading account. The trading account will require having some money in it which will be the upper limit of your purchases. It is that SIMPLE.

BUT… simplicity ends there because there are a lot of companies LISTED on exchanges. You will not only have to decide which company to buy but also allocate your share purchases in terms of sectors such as Pharma, Engineering, Consumer goods (FMCG), Petro etc. and also in terms of Market Cap (which defines how big or small the company is).

This can be an onerous task for a seafarer who though, may be having the facility of internet to keep a track of companies on board. But how to know about the news of the other companies, and other factors which can be political and economic which can have a multiple effect on a single company.

I am sure you have heard of a company called Satyam (in India), how it went down in a day, wiping out the wealth of a million shareholders and their plans and aspirations along with it.

In recent news was another Indian company called Bhushan Steel.

What you may not have heard of is the whole stock exchange vanishing into the blue and the government not taking any action on it.

It is not that I am discouraging you from buying shares and leading you to any specific mode of investing. What I mean to suggest is that as a partially informed professional you should first obviate (remove of) your risk, and if you cannot then at least try to minimise it by taking baby steps.

Even if the most informed advisor or investor told you of a very good company, it is not enough. You must know at what price the share must be bought and at what it must be sold and when.

It is this precise knowledge that an ordinary investor does not have and sometime by grace the most passive investors who buy a share and forget it for two decades – land up with windfall gains. But this story cannot be repeated often.

CONCLUSION

I have explained you how a company grows because of the country’s economy. We have seen how by being shareholders in the company we can become partners in the business and grow with the company, if the business model is right. At the same time I have also discouraged from investing in direct stocks till you start understanding the game. This is because in the next article I will introduce you to another avenue called MUTUAL FUNDS. Mutual Funds are the most efficient and simple mode of investing in the Capital market because the minimum amount required to invest is very less. Once you have started the initial investment, you can keep adding little by little every month.

So please read this article very well, as it will form the basis of our future discussions, which I am sure will get very interesting.

You may also like to read –

• Financial Planning: Long Term Capital Gain (LTCG) Tax And Life After That
• The Case Of A Financial Cauldron – How Seafarers Can Grow Their Money Smartly

Note: It is difficult to track things in a single country like India which is so huge and complex. To say that I can advise you for all the countries, whose readers are reading these articles- would be a big lie. I am not acting as your financial advisor. Due to my exposure to different geographical conditions, I have found these products which can be used by us –the hapless Seafarers. The names and methodology of these products may differ from country to country.

Hence my earnest request to you is to please use the power of the internet and find out these products in your country. They are common products and mostly available all over the world. If you find they are named differently in your country, please inform me in the comments that you are so kindly making. It will help us to spread awareness and enhance your own knowledge about your future planning.

Disclaimer: Author is a Chief Engineer from the Merchant Navy and has no formal qualification in Financial Planning. Views expressed are based on his own experience and that of others who have benefitted with his help. He may be reached at the forums. The author and Marine Insight shall not warrant or assume any legal liability or responsibility for the accuracy, completeness or usefulness of any information provided herein

Savings and Investments For Seafarers : Getting Started With Financial Planning appeared first on Marine Insight - The Maritime Industry Guide

(This article is specific to financial regulations of India. However, the basics remain the same across different countries.)

There was a very irritating message on the social network regarding Income tax anomaly- it has been doing the rounds for last 3 years at least. Some people may not have liked my calling that post about Income Tax as Trash.

But the fact remains that in this age of free opinion, it is becoming difficult to see some good ideas or opinions and even less,  good creative writing.

Sometimes bare facts stare at us in the face and we fail to see or recognise them.

Almost since 5 years ago, I was talking about the impending Capital gains tax on equities, simply because the deal was too sweet. Even though I was benefiting enormously out of the LTCG exemption, I was quite aghast at the difference in the tax treatment between the Small Savings which were ACTUALLY being used for Nation building and Stocks +Mutual Funds.

For a moment if you pause and think, how exactly and whom exactly is the Stock Market benefiting?

I purposely put a Question Mark to the above.

Apart from broadly spreading the awareness about the country’s Stock Index so that the foreigners come and invest in it and also the country- what is the exact benefit to the country?

When a company’s stock price zooms up, who benefits?

The company!

It benefits in the sense that it becomes highlighted and recognized and more people start investing in it and the share price zooms even higher. Now the company does some trading in its own shares to earn that extra profit. It also uses its enhanced Market Capitalization (which has gone up due to the higher share price) to secure some loans at attractive interests to further expand.

Now in this entire process, investors like you and me and the Mutual Fund Managers (on our behalf) make money by buying and selling the shares of these companies.

That is all that a Stock Market serves a person in nation-building.

The backbone of the economy, on the other hand, is the – Debt market.

Whether you deposit money in FDs, Debt funds or Post Office schemes. All the money is diverted to the Debt stream for the Government and the Corporate world.

The Corporate uses it to enhance its operations and the Government uses it to do development in the country.

All the NPAs that you hear about are part of this DEBT world.

As you can also find out from the eternal and omnipotent internet; the size of the Debt market is any day much much bigger than Equity.

Now let’s consider the fact that how much of your savings are in the Debt. Include all your Bank accounts, FD, Debt Mutual funds, Post Office schemes; Gold Bonds & ETFs.

Further, consider that since 2014 you are actually paying Capital Gains on the Debt funds.

If you are following my style of investment, your majority of the funds are parked in Liquid Funds while you are doing STP into equity funds.

Which means for every transaction you are having a Capital Gain and that too SHORT TERM; and if you are an NRI then the Capital Gains is being deducted AT SOURCE i.e. TDS.

Now tell me how much noise did you or anyone in the country make while paying the Capital Gains or Tax (on FDs).

As regarding LTCG on Equity which has been levied on 1st Feb 2018 but will come into force from 1st April 2018– you will not incur this tax unless you sell.

Which means that since this is your COLLECTION phase of wealth- you don’t have to worry.

So who is making the noise about the ELTCG (or Equity Long Term Capital Gains)?

Naturally, it is the Big Ticket investors and PMS holders and operators and traders who are making a noise because they sell often. They are the ones who provide the volatility and uncertainty to the market.

But no-one noticed that up to 11 months and 364 days of holding, you were already paying 15% as STCG (Short-term Capital Gains tax).

So you see most of the times – news is misleading, it’s eyewash.

Not one person asked the basic question, which is applicable to over 520 investors who move with me.

Will the MF managers pay LTCG separately on their Sale Purchase of shares and we will again pay LTCG when we sell our MF units?

Isn’t that the more relevant question?

The idea of this article is that instead of reading other people’s forwarded views, please read things in original and think originally.

As my Guru, A N Shanbagh had told me often; never consider yourself less than any professional in any field. As a fresher starting with no pre-conceived notions will probably lead you to better discoveries than a professional whose livelihood depends on it.

Fair enough, with my own thinking and conviction I have charted my Nirvana and helping few others to achieve theirs.

Always be future Proof: By thinking originally in your own mind’s eye, always weigh the possibilities objectively; and howsoever they may seem improbable or impossible don’t discount them; but prepare for them well in advance.

I had taken LTCG into my account of things almost 5 years back- and had told you in every seminar- that as of now you are having this advantage; when the rule changes- we will see.

Well now the rules have changed- so we take that into account – and move forward.

Instead of posting on social media and creating unnecessary debate I have sent the following suggestion to PMO.

In addition to the LTCG of 10% after 1 year; please consider modifying the law as follows: LTCG is reduced to 0.7% after 2 years of holding, it is further reduced to 0.3% after 3 years of holding and ZERO after 4 years of holding.

This step if accepted by the FM will provide stability to the market and give the advantage to the true investor and weed out short-term opportunity seekers.

In a similar way, I look forward to some creative ideas from you.

On a parting note, I wish to leave you with an unsettling feeling. Please prepare for the Government doing away with the Tax exemption for NRIs within next 5 years.

Now don’t tell me that it will never be done. You already know my viewpoints about governments of the world.

Note: It is difficult to track things in a single country like India which is so huge and complex. To say that I can advise you for all the countries, whose readers are reading these articles- would be a big lie. I am not acting as your financial advisor. Due to my exposure to different geographical conditions, I have found these products which can be used by us –the hapless Seafarers. The names and methodology of these products may differ from country to country.

Hence my earnest request to you is to please use the power of the internet and find out these products in your country. They are common products and mostly available all over the world. If you find they are named differently in your country, please inform me in the comments that you are so kindly making. It will help us to spread awareness and enhance your own knowledge about your future planning.

You may also like to read –

• Financial Planning For Seafarers: Difference Between Direct Equity Stocks and Equity Mutual Funds
• The Case Of A Financial Cauldron – How Seafarers Can Grow Their Money Smartly

Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.

The article or images cannot be reproduced, copied, shared or used in any form without the permission of the author and Marine Insight. 

Financial Planning: Long Term Capital Gain (LTCG) Tax And Life After That appeared first on Marine Insight - The Maritime Industry Guide

This is the fourth article in the personal financial planning for seafarers series by the very experienced Chief Engineer Rajeeve Kaushik. You can read the previous articles of the series here – Importance of Financial Planning for Seafarers , 10 Common Financial Mistakes Seafarers Make & Little Know Facts About Magic Of Savings Seafarers Should Know.

After I wrote the second article in this series regarding mistakes we as Seafarers make in our lives regarding savings, there was a certain uproar on various social platforms. People took special objection to the fact that I advised not buying expensive gadgets as it is a personal choice. With this objective in mind I have captioned this article with opposite characteristics: Compounding – which is an art of growing Money in investments or OTHERWISE how to kill your money.

It is always best to tell your own story and the mistakes that one has made. In this series of articles I will try to take you along my own journey and include the stories of my senior colleagues, so that it will give you an overall view of at least 50 trailing years.

If you select a Finance product that is reliable and safe and one that gives you or by its history “promises” to offer you a rate of return that is “realistic” – and then if you keep investing even a small amount of your savings in it for a long term, then it has a capacity to grow into an unbelievably large “corpus”.

I had learnt this fact quite earlier in life. However when I was younger, there were no such products in India that could give me sustained tax efficient returns. Or maybe I was not aware of such products. Whatever products were available, were either giving very low returns or were taxed upon maturity by the government. So even though I was keeping money in banks consistently and in some other avenues, my money was being FORCED to stay near about its ORIGINAL value. In effect what I was doing was KILLING MONEY.

The 4 main avenues that KILLED MY HARD EARNED MONEY are:

1. Bank Fixed (or TERM) Deposits: Because they were giving me lesser interest than even the rate of INFLATION in the country. We must evaluate this for our own countries, as inflation is different in every country. On top of that the government taxes the interest too. In India of course the NRIs (expatriates) have a account which is tax free, but the rate of interest for it was pathetic till 2012. So basically you lost one way or the other.

2. Post Office Deposit Schemes: These are not allowed for NRIs (expatriates), still the reason why I or anyone else saving here was destined to lose money was for reasons same as for bank deposits.

3. Ponzi or Quick-Get-Rich Schemes: Even though I did not fall for these schemes, it is important I mention them. These are the Quick-Get-Rich schemes. They may include chit-funds; cash for gold; plantations schemes; resort schemes; pyramid or multilevel marketing schemes. There are plenty of these in the market which will help you KILL your money surely, quickly and efficiently.

4. Expensive Insurance Plans: These are the stickiest part of the financial products market in the entire world.

Firstly, They cover you for such a small amount that even if I was dead , my family would not be able to manage with the money for One straight year.

Secondly, they never tell you how much of the money will be invested and how much of it will be used to buy you insurance. It is just rolled into one fat premium.

Thirdly, they do not let your money grow. The rate at which the money grows is at times less than the bank interest.

Fourthly, they keep asking you every year for the same high premium thus not letting you correct your mistake even if you found that you had made a mistake by taking the insurance plan. If you cancelled the Insurance plan, you would lose most of the money that you had paid by way of premium.

The best recourse for these Insurance Plans has come into the market in the last 2 decades (in India at least, elsewhere it has been for a long time.)

(Insurance is a necessary evil and needs to be taken. Hence my NEXT article will be dedicated to the INSURANCE. The process of getting one, and all that is good and bad about it.)

My above statement does not mean that the Bank deposits, Post office deposits, Company Fixed deposits should not be used for savings- they should to be used, since ASSET ALLOCATION is a necessity. However there is a time and limit for everything. We will also discuss this in detail later articles.

Now allow me to introduce you to the ART OF COMPOUNDING.

All of us have studied simple interest and compound interest in school, but have never appreciated it’s importance in practical sense.

If you will refer to the table that I had put in the Second article “ 10 COMMON FINANCIAL MISTAKES…” you will find that in ALL the three columns the money is growing . This money grows because whatever growth (by way of interest or growth in your investment) takes place in 1 year is added to the amount that you invested in the first year and is carried forward as the fresh investment amount for the next year. If you did not let this growth be carried forward to the next year and withdraw it after 1st year then at the end of every year your amount will remain same.

Let us call the amount invested in 1^st year as A1, the growth taken place as G1 , the total amount at the beginning of the second year is A2= A1+G1. Now to this if you add fresh investment as F1

Then A2=A1+G1+F1

A3= A2+A3+G3+F3 and so on. (where 1,2,3… stand for respective values in 1^st, 2^nd and 3^rd year).

Try to make this table in your own excel sheet and share it with your other shipmates.

This process of growth is called COMPOUNDING in the world of money. It has the sanction of a man no less than Albert Einstein, who called it the eighth wonder of the world.

For those who are interested in his full quote; here it is –

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein

I will try to explain it in better terms which only you as seafarer can understand.

You may have seen a Fire Hose on board ships, the length of which is governed by the length of the ship you are working on. You are also familiar with the thickness of the hose (which is not much). Now for the purpose of understanding, just imagine what happens when you start coiling up the Fire Hose to stow it in the Fire Box. With every turn or the coil grows more than the thickness of the hose itself. The growth of the coil is massive.

Another example is that of a snow ball. In the highlands, a small piece of snow due to its weight dislodges itself from the mass and starts rolling down. As it rolls down it catches more and more snow and becomes bigger and bigger. As it’s mass grows bigger it’s momentum also increases and so does it’s speed. Now from this example if you take away the inaccuracy of physics terms you will realize what I mean.

Now going back to the beginning of this article and answering to the gentlemen who objected to my advice of not spending on expensive gadgets. You are the best judge for yourselves. If you will not provide the initial mass to our SNOWBALL, how will it start rolling down and start accumulating more mass and momentum with time? It is very possible that not opting for a $2000 bike today may allow you to buy a Harley Davidson or a Hayabusa after 5 years and still leave money to spare.

World economy has a two way movement. Firstly it keeps increasing the cost of living. Secondly it keeps reducing the real value of the money that you earn or save/invest. (You may have noticed that I am not using the word saving and investment interchangeably since I believe they are different. This I will address in my future article).

• To give you a good example of rising costs : I bought my first house in the heart of the city with just ONE contract earnings (of 7 months) in 1993; at the time it was equivalent of today’s 12 i-phones cost together. Today with a full 12 months salary as a Chief Engineer sailing on Tankers in the best paying company, I cannot buy the same house again. This has happened because of the growing economy of the country, plus the local reasons of the place. In a similar way my home expenses have grown approximately 12 times in 22 years. This is the monster that you have to learn to protect your money against.
• Now to give you an example of how money loses it’s value: If I had deposited Rs.1,00,000 in a bank or any such place at 10% Rate of Interest . It would amount to 8,94,000 in 22 yrs. Seems an impressive figure? Now imagine if you were to pay a tax of 20 or 30% on the gains where would this amount be. To top it take into account an inflation of 8% (which is an average in most good developing countries) and your amount of Rs.894K reduces to miniscule even after 22 years of leaving it in place (even as per the table above).

CONCLUSION : This brings us around to the SECOND realisation that : NOT ONLY WE NEED TO INVEST CONTINUOUSLY AND CONSISTENTLY IN GOOD FINANCIAL PRODUCTS; WE HAVE TO ENSURE THAT THE PRODUCTS ARE TAX EFFICIENT OR TAX FREE AND THE REAL RATE OF RETURN IS OVER AND ABOVE THE INFLATION RATE. Till the time you are young and the FINANCIAL RESPONSIBILITIES on you are not much as compared to your salary- you should explore and invest IN HIGH GROWTH PRODUCTS.

What are these products?

We will discuss in the later articles; however you will have to do some research with me. Since my work in financial planning has been mostly related to India, I will tell you about the generic plans that exist in the Financial world, then you will have to find corresponding products in your own country. This will not be difficult since you would have by then thoroughly known about your choices and then most of the information is available on the net.

The lead that you will take in the initial years of your career will help you think better in later life and help you achieve FINANCIAL FREEDOM.

Over to you..

What is the best step you have taken in life to achieve that financial freedom?

Let’s know in the comments below.

You may also like to read – Financial Planning For Seafarers: Difference Between Direct Equity Stocks and Equity Mutual Funds

Disclaimer: Author is a Chief Engineer from the Merchant Navy and has no formal qualification in Financial Planning. Views expressed are based on his own experience and that of others who have benefitted with his help. He may be reached via email here or at the forums. The author shall not warrant or assume any legal liability or responsibility for the accuracy, completeness or usefulness of any information provided herein.

4 Types Of Investments That Kill Seafarers’ Hard Earned Money appeared first on Marine Insight - The Maritime Industry Guide

This is the third article in the personal financial planning for seafarers series by the very experienced Chief Engineer Rajeeve Kaushik. You can read the previous articles of the series here – Importance of Financial Planning for Seafarers  & 10 Common Financial Mistakes Seafarers Make

Savings are an important part of Human Nature. In fact even animals and birds have been known to save food for “A Rainy Day”. If you are an engineer on board ships you would have realised the importance of extracting the last bit of energy from every drop of fuel, also called the “saving of fuel.”

In my second article 10 COMMON FINANCIAL MISTAKES SEAFARERS MAKE, you would have studied a savings table and discovered that even a small amount saved by seafarers early in life and continued for a long time has the ability to produce mind boggling returns. However this is no magic but simply mathematics which comes into play when you start putting yourself under “discipline saving.”

When it comes to financial planning, there are broadly two types of savings that every human being practices even without knowing- Direct or Active Savings and Indirect or Passive savings.

This you may not find in any Economics text book, but since I have elevated savings to an important action, we will treat it as a philosophy.

Let’s get a bit deeper!

DIRECT or ACTIVE Savings: are those that a person does by putting a part of his earnings aside; whether in a bank, piggy bank or under his mattress.

INDIRECT or PASSIVE Savings: in my opinion happen when we make conscious alternatives to our expenditures or defer certain expenditure to a future date. e.g. If you decide to buy a lesser priced (I will not say cheaper as it does not sound good) mobile or a car. You save some money which is yours, which otherwise would not have been with you.

Another example is that you decide to pay off your overdue credit card bill by withdrawing cash from your bank account which is earning lesser interest than what you are paying for your credit card outstanding.

Both the above savings will help you boost, what I call your CORPUS.

CORPUS: Since your pay check at any given time or at any rank will always be fixed and limited, this corpus is what we will seek to create and boost by various methods in future. It is this corpus that you will aim to maximise by adopting healthy saving habits and healthy spending habits. This corpus will consist of Bank account, Fixed Deposits, Post Office schemes, Shares (if you will choose to invest in them), Mutual funds (which you must) etc.

The insurances that you will adopt for health, accident, House and life will not come into this Corpus directly because they are only for risk coverage. However, since they will enable you to cut down on unforeseen expenditure such as illness, accident, Fire/theft at home or other similar emergencies. You can consider this to be an enhancement on your corpus.

Whenever in future you calculate your complete net worth you should understand that it is same as what we are calling corpus.

Having said all that now comes the most difficult part of actually saving in an optimal manner!

Your salary from ships is directed to your bank account via the monthly allotment route. First from a legal standpoint please ensure that you have correct type of bank account as per your country’s rules.

e.g. In India the expatriates (called NRIs- those who stay for less than 182 days in India) are required to have NRE savings accounts. This is a specific account for NRIs where funds should be parked for only short periods of time, since the rate of interest is very low. It is advised to keep funds for about 3 months of home expenses in NRE accounts. Remaining money if you do not need for more than 1 year, can be shifted to NRE FIXED deposits. I will again reiterate that if you need this money within 1 year, then do NOT put it in Fixed Deposits or term deposits, as you will not earn any interest even if you break or liquidate your deposit just 1 day before the 1 year period.

These rules are not made by banks, but by RBI (Reserve Bank of India), so do not be misguided by the bank if it advises you otherwise.

FCNR (B) deposits are also fixed deposits, but those maintained in major foreign currencies, in India. To open these accounts you have to give instructions to your bank by filling a form, before or with the remittance which comes to the bank. Since for seafarers the salary is remitted by the ship owner/operator, and the date is not fixed, it is better to leave some pre-signed forms with the bank manager/relationship manager/relatives at home. This type of deposits should be opened if it is expected that the home currency (Indian Rupee in this case) will depreciate, or if you feel that you will need foreign currency in future for the purpose of your exams abroad or some other purpose. Since the minimum period for these deposits in India is also 1 year, the deposit should be started only if you do not need this money for more than a year. Of course if there is a marked depreciation in Rupee, you can liquidate the deposit to benefit from the higher exchange rate. Such benefits of course, more out of chance than design, e.g. The heavy depreciation in the Russian Rouble may have helped those who maintained some type of bank account in USD.

Now the question arises what we can do so that our monthly salary earns more than the minuscule rate of interest, which you will be earning by putting it in various deposits in the bank, and yet retain the option of taking out your money when you want.

LIQUID FUNDS

At this stage I am introducing you to another concept of monetary management called MUTUAL FUNDS. As the word suggests, these are cumulative deposits initiated by certain Finance Companies called AMCs (Asset Management Companies). There are two types of Mutual Funds: EQUITY and DEBT (also called Fixed Income Funds). These funds exist in all countries, in India they are very well regulated by the government and it’s nominated body called SEBI.

• Liquid funds are a category of these Debt Funds which invest in giving loans to the government and big corporations.
• In LIQUID FUNDS you can invest only in Indian Rupees or the local currency of your country.
• After you have deposited your funds, your deposit grows each and every day by a small amount which is a little more than the government bank rate.
• After this whenever you wish to withdraw your money for any need, you can do so by filling a redemption form or by Online Transaction. Within 24 hours, the money will be deposited in your same registered bank account, from where the payment was made.
• This is a very versatile system, and if you can set it up you can really make lot of gains while you keep working on board ships and every month’s salary is being remitted to your bank account and from there to the Liquid fund whenever you transfer it.
• The entire amount collected from different months is considered to be one and in the same FOLIO (or account) and keeps appreciating everyday for the period which you remain invested in. e.g. In the last 3 months (Oct- Jan period) the Indian Liquid Funds have earned an average of 2.02 %(best return being 2.65%). This may not look much, but if you compare it with a savings NRE a/c which will give you about 2.3% for the ENTIRE Year.
• Another important benefit of the Liquid Funds is that, whenever you withdraw from your fund, there is NO penalty, as in NRE FD. Only tax is deducted for the NRIs before paying back into your bank account. This tax can be claimed back by filing your Income Tax return.
• I had checked these type of funds were available with most of the countries under different headings.

A new investor might find it difficult to invest in Mutual Fund, but once his first investment is done, he will realise that it is utterly simple and worth the pain of finding a Mutual Fund Advisor. I can guide you more on this if you find any challenges.

Before finishing this article, I wish to impress one thing to my fellow seafarers of all ranks. Please mind your pennies, the Dollars will take care of themselves. Whatever be your pay check, please endeavour to save a fixed amount EVERY month, however small be the amount. Mention below are some important points you must consider.

1. If you are already in the habit of saving, then elevate to the next level of saving. When I say efficiently, it means earning higher interest, which is tax efficient, Inflation adjusted and Minimal Risk. There is no point in earning 7-8% interest on a particular scheme if the inflation in your country is 10-12% and then have to pay tax on the gains that you make.
2. For me, the flexibility of getting my money out of any investment by paying minimum penalty is very important even if I do not use this option anytime. In my opinion it should be same for you. I believe that the discipline for remaining invested in a scheme should be yours and not forced upon you by the finance company or bank. At the end of the day it is your money and despite best of planning who can ever say when and for what you may need that money.
3. Find out about new avenues in your country, discuss on this forum before embarking to invest in those with your very very hard earned money. I will teach you to ask some uncomfortable questions to your financial advisors so that truth emerges. Further you must only believe in replies which are written; verbal replies and assurances have no meaning in the rough field of investing.

With that new resolution for the remaining part of the year 2015, I leave you to think for a while and sit and make a plan on paper.

You may also like to read – The Case Of A Financial Cauldron – How Seafarers Can Grow Their Money Smartly

Disclaimer: Author is a Chief Engineer from the Merchant Navy and has no formal qualification in Financial Planning. Views expressed are based on his own experience and that of others who have benefitted with his help. He may be reached via email here or at the forums. The author shall not warrant or assume any legal liability or responsibility for the accuracy, completeness or usefulness of any information provided herein.

Little Known Facts About Magic Of Savings Seafarers Should Know appeared first on Marine Insight - The Maritime Industry Guide

This is the second article in the personal financial planning for seafarers series by the very experienced Chief Engineer Rajeeve Kaushik. You can read the previous article of the series – Importance of Financial Planning for Seafarers here. 

As seafarers, we are very uniquely placed.

We live and work in our workplace as it moves around the world incessantly. Our cabins become our physical possessions for the specific duration of our stay. As senior officers sometimes we do the same ship several times and stay in the same cabins intermittently for a few years too. Boarding and lodging is on the shipowner and so are the medical expenses. We are also told that we’re insured for a certain amount of money.

All this fills us up with a false sense of security and complacency because of a lot of reasons, which actually manifests itself in the forms that are mentioned and explained below.

Because we do not learn to spend on the home-front until we are married, we do not appreciate how much it costs to run a household. We do not develop any perspective of small day to day expenses and learn to plan for the same. This lack of practical experience and understanding of personal finances often leads to some major mistakes, which could have been easily avoided.

Needless to say, as seafarers we make a lot of financial blunders, which eventually boil down to following common ones:

1. Dependence on Shipowners:

Times are changing and so are shipowners and requirements of seafarers. Just because our salaries have not increased in real terms does not mean that the cost of living onshore has not increased. In fact, the cost of living, medical expenses and also the life aspirations onshore have gone up substantially. Unless we plan our finances wisely and realistically we could be in for a serious shock in our later lives.

2. No Medical Insurance: 

Seafarers often do not plan for their own medical insurance. They feel that the shipowner will cover them for any eventuality. This is not true because, during the leave period, MOST of the companies do not cover them. Hence if something happens to seafarers or their families during leave, the medical and other related expenses can be huge. It is therefore advisable to go for a Floater type of policy for your ENTIRE family.

3. No Life Insurance:

A sailor (Officer or non-Officer) thinks that the shipowner is providing them with adequate life cover. Little do seafarers realise that the Insurance cover is only for the tenure of their working period on board. They do not plan for cheaper forms of insurance (called TERM INSURANCE PLANS) while they are young and the premium is less. If they did plan at the age of 22 and took the insurance till the age of 75 they will have to pay way less (about $150 to $200 a year). The coverage for such plans would be in the range of $300,000 and the premium would stay fixed till the age of 75 (or as applicable in your respective country). Remember, TERM PLANS are a risk only plans, meaning that your survivors will be paid in case something happens to you, otherwise the premium will be consumed. It is almost like the ship insurance plans.

4. Wrong Type Of Insurance:

What is worse is that even if seafarers take Life Insurance Policies, they are mostly money back or endowment policies, which do not have a very large coverage amount but in the garb of giving back the money they charge astronomical premiums. Please do not fall for such Life Insurances. Good insurance for you for Half a Million dollars should not cost you more than $300 if you are below 30 years of age and a non-smoker (Medical and health requirements will vary depending on the country and company).

5. N0 Contingency or Emergency Fund:

Today an officer leaves home for a period of 3 to 5 months and a Non-Officer for even more. Though the salary is regularly sent home via ALLOTMENTS, sometimes this does not reach or is not sufficient. There are also situations when a family member is seriously sick and if there is no Health or Medical Insurance the cash outgo can be huge. For such occasions, seafarers must deposit money in a separate account for at least 3 months of HOME EXPENSES so that it serves as an emergency fund.

6. No Proper Plan For Savings:

Though the modern seafarer is getting wiser than their predecessors, most of the times they either do not save or save SUFFICIENT savings. If the seafarer doesn’t start saving in the initial years when he is not married or has any major responsibility, it can get a bit serious as he will lose the advantage of being an early bird.

Let’s take an example to understand this.

In the table shown below Seaman Michael (just for e.g) starts putting away only $100 a month in a scheme giving a return of 12% per year (p.a.) and continues till the age of 31 and STOPS depositing thereafter. However, he does not withdraw and lets his savings continue until the age of 50, WITHOUT adding anything more.

After a few years, he is keeping watch with Second Officer Ruel, who is also the same age as Michael. Ruel finds out about Michael’s plan and starts himself in the same plan and keeps saving $100 every month TILL the age of 50.

Now from the table below it will be very clear to you that despite stopping after 10 years Michael has $ 15,114.31 in his account. Whereas Ruel has only $13333.39 even though he continued with his contribution of $100 till the age of 50. Ruel will never be able to make up for the shortfall created because of his delay of just 5 years.

The third column in Yellow shows what the value of savings/investments would have been if Michael had continued putting his $100 throughout his working period.

7. Locking Into High-Value Houses / Apartments At Inappropriate Terms: 

A house is a must for every human being and is the third necessity after food and clothing. I firmly believe that one should acquire a shelter as early in life as possible.

However, one should take consideration of the city that one intends to settle down and also the area. A big and popular Metro maybe a good attraction, but if you intend to make a career at sea, is it worthwhile staying in a bigger city with limited and expensive resources? Shifting to a smaller city or what may be a suburb might be cheaper today and which eventually may easily develop in 5 to 10 years time.

Another aspect of housing is the loan (also called mortgage in some countries). There are various aspects to it. If you take a very high-value loan with a high rate of interest early in life, it may impede or hamper your professional and financial progress and even put a high burden on you during a stage in your life when you need cash for a lot of things.

This is an aspect that I will cover in my future articles, as it forms the basis of mental peace for seafarers.

8. Trusting Various Finance Personnel Easily:

Because of our limited exposure to methods onshore, we start trusting various agents and employees of the bank. Most of the useless plans and insurances are sold to us without our requirement for the same by the beautiful girls at the glittering banks, which they have now become. I have myself been a victim of such mis-selling. All these plans burn a very large hole in your pocket in the long run; it’s very simple- you are buying bananas when actually you need apples.

Most of this wrong guidance comes from known people and relatives, who either sell it to the seafarers themselves or connect them to the wrong people. Stay away from it. Educate yourself and make a wise decision.

9. Spending Too Much On Things You Use Little:

In our initial years at sea, we have longer contracts. As a result, all the latest gadgets that you buy are not utilised. Most of them are bought with the input of the colleagues or friends onshore or because of the advertisements that you see at the airports while joining or signing off from your ship. Just imagine during a 6 months contract you buy $800 iPhone when you actually cannot call with it while at sea. Instead a $300 tab or a Laptop can help you make free calls, send messages via “online messengers” or emails. By the time you sign off from the vessel- the $800 gadget has already become obsolete with a new version already out in the market. The vicious cycle of purchasing irrelevant things thus continues.

Expensive motorbikes or cars are other objects of desire that seafarers purchase and leave home while staying for long periods of time at the sea ( Yet another impulsive buying habit which is a product of “materialistic comparison” with others – mainly family and friends).

I remember a fourth engineer who during his first tenure on board was bent upon buying a BMW car for his father, who drove a modest Maruti 800 and who was strongly against such a waste of money. The fourth engineer would have bought this by taking a loan at a very high rate of interest. Everyone on board had to make an extra effort in explaining to him the futility of his action, especially because he also had an education loan of $20,000.

If the senior officers or those who have spent quite some time at sea do not provide good advice to juniors, the latter land up picking up things of high value and least utility while on board.

10. Not Keeping in Touch With Developments in Respective Countries: 

News from home should not only consist of Formula One car racing or cricket match scores. Good news or news of an opportunity can save and make money if you can utilise it at the right time. A lot of you may believe what do these points have to do with financial planning? Actually, it has a lot to do.

Our income from our sailing job is fixed and does not go up with the cost of living in our own country. Hence we have to devise ways and means to make stretch this income. The idea is to use it to generate more returns in an efficient, legal and tax-efficient way.

If this is done properly, I can assure you in about 10-15 years of your working life, you will have two sources of income and in all probabilities, the returns from your investments may outstrip your salary.

In the forthcoming articles, we will deal with each aspect of this financial planning.

Eventually, we will surely and steadily move in a direction that will ensure Financial Freedom for seafarers.

The financial freedom which will allow you to choose your course of life. It will allow you to choose your stay on board, duration of leave, take the holidays that you desire and when you desire.

However, it will have to go with the thought that something has to be sacrificed today so that something more can be enjoyed tomorrow.

Over to you…

Have you made any of the financial mistakes mentioned above?

Share your experiences in the comments below or ask a question to the author on planning your finances at the Marine Insight Forums here.

You may also like to read –

• Financial Planning For Seafarers: Difference Between Direct Equity Stocks and Equity Mutual Funds
• The Case Of A Financial Cauldron – How Seafarers Can Grow Their Money Smartly
• 5 Ways Seafarers Can Go For Cashless Transactions In India

Disclaimer: The author of the article is a Chief Engineer from the Merchant Navy and has no formal qualification in Financial Planning. Views expressed are based on his own experience and that of others who have benefitted with his help. He may be reached through mail here. You can also join the discussion at the forums here. The author shall not warrant or assume any legal liability or responsibility for the accuracy, completeness or usefulness of any information provided herein.

10 Common Financial Mistakes Seafarers Make appeared first on Marine Insight - The Maritime Industry Guide

Rajeeve Kaushik, an experienced maritime professional and a self-taught financial planning expert, takes seafarers through the journey of financial planning, providing age specific investment and saving plans along with some very helpful golden nuggets.

Seafarers, as a group, are quite disconnected from the world which creates a void of knowledge regarding requirements of family and life ashore, along with a dearth of information on financial planning.

Though enough has been said on the subject of finances, seafarers considerably lag behind on the matters of finances, making them rely on the decision of others and thus risking their hard-earned money.

Considering the unique situation of seafarers, chief engineer Rajeeve Kaushik through his ebook “A Guide To Financial Planning For Seafarers” provides a thorough understanding on the various aspects of financial planning right from the start of the career until the time you hang-up your boots.

This ebook will help seafarers in:

– Making their own financial decisions

– Inculcating financial discipline

– Creating wealth by maximising return on your investment

– Understanding the process of taxation and taxability

– Planning finances according to the age group

– Keeping a track of investments

and much more…

Click here to know more about the ebook

Note – This eBook has been written from the point of view of an Indian seafarer and the financial planning instruments available to him or her in India. However, the basics of financial planning mentioned herein hold true for seafarers of all nationalities. 

New eBook – A Guide To Financial Planning For Seafarers appeared first on Marine Insight - The Maritime Industry Guide