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In todays current investment markets, there has been an increase in the number of individuals deciding and adhering to an investment plan. Perhaps this is caused by the drastic increases in the cost of living or the profound insecurity about the future of social security, and retirement funds. Many families are looking for investments plans which help them build two funds - one for the future and one for the present. Most people are not interested in purchasing stocks and bonds. This is both time consuming and complicated.

Investment plans essential allow the an investor to buy a set number of stocks, bonds, and securities. Purchasing is done on a regular and consistent basis. Funds for the investment are taking directly from a check, savings, or money market accounts automatically. These money is used to buy stocks and bonds that were pre-decided upon. For the most part you can change any of variables at anytime. These variables include amount, frequency, and what stocks are bought. There may be fees associated with changes. Make sure these fees are known before you sign your contract with your broker. However, if you are looking for more freedom most online investments firms allow you to change your variables anytime for free.

The next important step in an investment plan is figure out how much money you would like to invest.

It is a good idea to have a household budget. This will allow you to clearly analyze how much extra money is available for investing. Due to the long term nature of investment plans, you would suffer a financial lost if you had pull out early because you invested more money then you could afford. Make sure the amount you pick is readily available for each time the investment comes up. Remember just because you have extra money now does not mean in the future you will. Many investors come up short several months after starting their investments plans because they did not budget for an emergency fun. If you do feel you are at point where you can not no longer make a regular investment more investment companies will allow you to reduce or hold the next schedule investment.

Now you know how an investment plan works and you have the money to invest. The next question is how do you decide what to invest in. Research is the key component to this step. It does take time to decide but it is well worth the effort. Make sure you find stocks that have a history of performing well in the long term. At the time of purchase they may be expensive however they will probably also continue to increases which will directly benefit you. As you feel more and more comfortable with investing feel free to add more stocks and bonds to your portfolios. Many financial experts believe that diversification is a great way to increase your investment profits.

What is a Stock and Why Buy Stocks?

What is a stock?

Stock is an equity investment. What does that mean for you? Proud ownership of a company you believe is a good investment. So if you invest in a stock, you have an ownership stake in the corporation that issued it, or offered it for sale. The size of that stake depends on the number of shares you own compared to the total number available.

Why buy stock?

Ownership has its privileges

As a shareholder, you have some basic rights. You can vote for or against the candidates who have been nominated to the companies board of directors. They are the people who set company policy and choose the chief executive who runs the business. You can also vote for or against proposals the directors or other shareholders make to influence what happens at the company and how it is managed. You also have the right to sell your stock at any time - although you may choose to hold onto it for years.

But in reality, shareholder rights probably are not the reason you buy stock. The reason is to make money by investing in companies you believe will make money. In the language of investing, you are seeking a positive return.

Here are some ideas to consider when thinking about a positive return:

The company that issued the stock may pay a dividend, or portion of its earnings, to its shareowners on a regular basis. You can reinvest the dividends to build your portfolio (and actually, we will do that automatically for you, for free) or you can use it as income.
A stocks price may go up while you own it. If it does, you can sell some or all of your shares for a profit if you want to, or you can hold onto it, which increases the value of your portfolio. Investing in stock has risks, though. You may have a negative return rather than a positive one.

Here are some of the possible risks you face:

Companies are not required to pay a dividend even if they have a profit. And companies that normally pay a dividend may reduce it or eliminate it entirely if times are tough. It is their decision, even if investors do not like it.
Sometimes stock prices go down instead of up, so you could lose money if you sold when your stocks price dropped. Why do prices go down? Sometimes the whole stock market loses steam. Sometimes a company hits a rough patch. Sometimes investors get nervous and sell.
If a company goes out of business, as some do, you could lose everything you invested in its stock - if you had not sold your shares in time.

If you can lose money, why would you risk buying stock? The reason is that over time, stocks as a group - though not every stock on its own - have produced higher returns than other types of investments. One key idea here is "over time." Time tends to level out the ups and downs. If you get caught in a "down" at a time when you need your money, you could find yourself in a pretty bad spot. Of course, there are no guarantees that the particular stocks you pick will produce higher returns, or any return at all on your investment.

What is market price?

Most investments do not have a fixed price. Similar to the "market price" for the catch of the day at your favorite eatery, the price you pay to buy, or the price you receive when you sell, is determined by how interested other investors are in owning that security. That is the rule of supply and demand. If there is a lot of buying and a fixed number of shares, a stock price will move higher. And, if there is a lot of selling, the price will drop.

Sometimes prices change by just a few cents during a trading day, sometimes by a few dollars, and sometimes by more. The pace of change is called volatility. The more volatile a securities price, the more potential there is for a positive return, but the risk of loss is larger too. In fact, that is a key principal of investing. Risk and return often go hand-in-hand.

Today, almost everybody owns a life insurance policy. It could be for various reasons like investment purposes or for tax benefits, but the key point is that it provides complete peace of mind. With insurance plans, one does not have to worry about their familys future security in their absence. These plans provide financial security to the surviving family members after the death of the insured.

Insurance is a must for anybody who has financial dependents. The age bracket to buy a insurance plan is approximately from 18 - 75 years of age. Most of the banks have a minimum and a maximum amount of money to be assured.

Types of Life Insurance Plans

Broadly, the two main types of insurance policies are term insurance and whole life insurance. Term Insurance Plans are the most basic and simplest plans. These plans provide a cover for risks only for a short period of time. After the term comes to an end, you can renew the plan but chances are that the premiums will rise. These plans are economical.

On the other hand, whole life insurance plans are expensive but these policies continue for as long as the insured lives. These plans are sometimes treated as investment options because one does not receive any money till the death of the insured.

Other plans include unit link life insurance plans that offer great investment options along with financial security. Usually, one has to pay two separate premiums - one for the life insurance and one for investment. These plans are beneficial as they provide financial solutions during your lifetime as well as after your lifetime to your family members.

There are retirement insurance plans available for senior citizens too. Insurance policies are extremely important for such people as these plans offer security and freedom to the surviving spouse. Child plans are another choice in insurance plans. These policies provide financial aid for your childs education, marriage, etc. Another option are the health insurance policies. Health insurance policies provide a cover for medical expenses. These plans are suitable for people who suffer from health problems like diabetes, cancer, etc.

Riders in Life Insurance

Riders are the additional benefits that one can add to their life insurance policies. However, the premium amount increases with the inclusion of these riders. There are several types of riders in insurance plans offered by banks. The most popular of all are:

Critical Illness Benefit Rider: It offers financial aid in case the insured gets diagnosed with critical diseases like cancer, heart attacks, kidney failure, etc. Accidental Death and Disability Benefit Rider: In case the insured becomes disabled following an accident, this rider covers this risk.

Tax Benefits

Tax benefits as per the Income Tax Act, 1961 offer a deduction in the premium amounts, investments, dividends, etc. However, these benefits are subject to amendment regularly.

These Plans protect the needs and requirements of your loved ones in case of unfortunate events. It helps keep your family safe and secure even when you are not around.

Introduction of Fd:

A fixed deposit (FD) is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date . It may or may not require the creation of a separate account. It is known as a term deposit or time deposit in Canada, Australia, New Zealand, and the US, and as a bond in the United Kingdom. They are considered to be very safe investments. Term deposits in India is used to denote a larger class of investments with varying levels of liquidity. The defining criteria for a fixed deposit is that the money cannot be withdrawn for the FD as compared to a recurring deposit or a demand deposit before maturity.
Introduction of FD Bonds:

A bond is a negotiable debt security under which the issuer borrows a given amount of money, called the principal amount. In exchange, the borrower agrees to pay fixed amounts of interests, also called the coupons, during a specific period of time. Everything is well defined by the bond contract: the coupon rate is the interest rate that the issuer pays to the bondholder and the coupon dates are the dates on which the coupons are paid. Besides the issuer will repay the total amount of the principal when the bond will reach what is called maturity (or maturity date). In short, a bond is a securitized loan.
Why should buy?

Bond funds make bond investing easy for average investors. Investing in bonds profitably could soon be a different story. Now you know bond investing basics. Few average investors actually invest in individual bond issues like XYZ above. Instead, millions of Americans get into bond investing the easy way with bond funds. These funds pool investor money and manage a collection (portfolio) of these securities for their investors. When you invest money in a bond fund your money buys shares, and you then own a small part of a large portfolio of bonds. The fund actually owns the securities and buys and sells bonds on an ongoing basis. They pass the interest income on to investors in the form of dividends, and usually charge less than 1% a year for their services.

As a bond fund investor you can have your interest income send to you periodically or you can have these dividends reinvested automatically to buy more fund shares. The value or price of your shares will fluctuate along with the price fluctuations in the individual bonds held in the portfolio. You can buy or sell fund shares on any business day. You are not locked in. Now you know bond fund investing basics. So, here is the rest of the story. Remember, when you own bond funds you have an investment in bond securities. Whatever happens in the bond market and to the value of the bonds in your fund portfolio translates to gains and losses for you.

For whom it is suitable?

What is the maturity of the bond?

Another way to ask this question is How long will you need to hold the bond before you can get your money back? It is very important that you consider how soon you will need the money whether it will be used for a vacation, a new home or to fund your retirement. Another important factor to consider on this subject concerns liquidity. Is there a ready market for the bond if you need to sell it prior to the maturity date? Or will you need to find another means to fund that unforeseen opportunity?

Does it have early redemption features such as a call date?

Many investors have either been unaware of or have overlooked the call features on their bonds and other callable fixed income products. Many investors purchased bonds paying very attractive yields when rates were higher only to have them called away during the recent low interest rate environment. If you are counting on a high yield bond to provide the income that you need to buy your groceries you may be a bit surprised when your bonds are called away and you are looking at reinvesting in new yields that will barely cover a trip through the drive through window at your local fast food restaurant.

What is the credit quality?

What is the rating? Is it insured? Don not get too excited about that 7% yield until you find out whether the bond is investment grade or if it is junk! Credit quality is very important. If you can find a bond that is triple-A rated with insurance guarantying that you will receive all of your interest payments and all of your money back at maturity you might be happy. But, if you just blindly jumped on a bond that was paying 7% because it had a great yield you may be surprised to find out that the company might be on the verge of bankruptcy and you may never see your money again.

Investors should keep in mind that credit ratings may change after you purchase a bond or most other investments. Does Enron ring a bell? Many brokerage firms had buy ratings on Enron is common stock and Standard & Poor is even showed an A- rating on Enron is Common stock as late as October 2001. Unless you have been living under a rock you have probably heard what has happened to investments in Enron.Credit quality of the insurer is important too! While having an insured bond often lends us great comfort, the insurance on the bond is only as good as the quality of the company that is insuring it.

What is the interest rate?

How much am I receiving to lend my money to the issuer? Remember that you are actually loaning your money to someone else and you should be properly compensated. Is the interest rate appropriate for your time horizon? If you are receiving 3% on a two year bond you may be satisfied with the yield but you probably would not be satisfied with the same yield on a thirty year bond.

What is the price?

Many investors get so excited when they see a high yield bond that they forget to consider the price! A bond may originally have cost $1000 to purchase but with the changes in interest rates (as well as other factors) over time; the bond may be worth more or less than when originally issued. If a bond pays 7% interest but you pay $1120.00 to purchase it, the yield is not so attractive.
What are the Risk?

Risk #1: The economy

The most pressing risk of investing in the stock market is that the economy can always take a downturn. A combination of factors can cause the market indexes to lose significant percentages. In fact, we are just now returning to the levels of the pre-September 11 market.

In general, the economy is just going to happen. There is nothing you can do to control it. Most young investors are best off if they just ride out the downturns. Investing for the long run really helps. In fact, many investors use the downturns to pick up stocks that are good solid companies at a slightly lower price.

If you are an older investor, a major downturn of stocks can be devastating if you haven not moved the significant portion of your portfolio from the stock market and into bonds or fixed-income securities. This is where management and risk tolerance really comes into play. Don not put things off. You never know about the economy.

Risk #2: Inflation

Inflation will always be a risk to investors. It hits everyone, no matter their savings or portfolio size. It will destroy the value of your dollar. It is the cause of recessions. We like to believe that we can control inflation, but sometimes the cure is just as bad as the problem. Higher interest rates can help to mitigate inflation, but they can also hit the market in a negative way.

Investors usually retreat to hard assets, such as real estate, when inflation gets high. But in most cases, stocks are usually a pretty fair protection against inflation. the idea is that companies have the ability to adjust prices to the rate of inflation. There are some industries and sectors that adjust more than others, so you should diversify your investments. Investors are hurt by inflation by the erosion of the value of the dollar. Those on a fixed income will suffer the most. That is why it is a good idea to keep a portion of your assets in stocks, even when retired.

Risk #3: Market Value

Market value risk occurs when the market turns against your investment, or even ignores your investment. For example, the market often chases the next hot stock, leaving many good companies behind. Some investors will use this to their advantage -- buying stocks before the market realizes their potential.

However, it can also cause your investment to flat-line while other stocks rise.

Diversification between different sectors of the economy is key. When you spread out your investments, you have a better chance in participating in growth.

Risk #4: Becoming too conservative

There is nothing wrong with being careful. However, you can go too far in how conservative you are. If you never take any risks, it is probably that you will not reach your investment goals. You know that investing in a savings account for the next 20 years is not going to give you enough of a return to retire. You have to be willing to accept some risk. Just keep it under a close eye.

When you know the risks of investing and research your stock potentials, you make decisions that help you not only mitigate risk, but eliminate a large portion of stress as well.

Tax Planning
Planning is the key to successfully and legally reducing your tax liability. We go beyond tax compliance and proactively recommend tax saving strategies to maximize your after-tax income.
Our consultants make it a priority to enhance their mastery of the current tax law, complex tax code, and new tax regulations by attending frequent tax seminars. Businesses and individuals pay the lowest amount of taxes allowable by law because we continually look for ways to minimize your taxes throughout the year, not just at the end of the year.
With the growing complexity & diversity of available options for tax planning purposes, it is important that we critically examine and bring across to you the new generation options available for investors in the present investment market.
There are various provisions in the Income Tax Act to save tax. The saving schemes one should opt. For would depend on the persons income and the tax bracket he / she is in.
In other words investing in Equity Linked Savings Scheme may result in greater savings for one person while investing in PPF may result in better tax saving for another person. The Tax saving strategy should be finalized on an individual basis after discussion. For tax saving point view, the suitability of a scheme depends on which income tax slab one is in.

Best Tax Saving Investments for Deductions:
Tax Deductions Through Investments
According to Section 80C of the Income Tax Act, you can reduce your taxable income by Rs.1 lakh by investing in certain investments. These investments can be from any one source or a combination of sources such as Public provident fund, national savings certificate, tax saving mutual funds, pension plans, fixed deposits and life insurance policies. Since, the returns on investment, risk factors, term of deposit and entry load or commissions vary for each type of investment; here is some information about each type to help you select the best according to your needs. They are arranged as the best investments for young salaried tax payers in India according to the ones which I prefer the most –

1. Equity Linked Savings Scheme (ELSS) –
High Risk. Also known as tax saving mutual funds, an ELSS has the lowest lock in period of 3 years. As the money invested in an ELSS is invested by mutual funds in diversified stocks in the stock market, there is no guaranteed return. Dividends and profits from redemption of units after the term period is tax free. If you buy directly from the mutual fund instead of a broker/distributor, then you pay zero entry load, else entry load is around two percent. Remember, in the long run, the stock markets always see a rise.

2. Bank or Post Office Fixed Deposits –
Low Risk. Only investments made in scheduled banks for a period of five years or more can be counted as a Bank Fixed Deposit. The interest on such fixed deposits is around 8-9 percent. Income from interest is taxable. Forms are available at bank and post office counters.

3. National Savings Certificate –
Low Risk. It comes in denominations of Rs.100, 500, 1000, 5000 and 10,000. The forms are available at any post office. The maturity period is six years while the interest rate is 8 percent compounded half yearly. If you pay in cash, you will be given the National Savings Certificate then and there. If you pay by cheque, you will have to wait a week before you can collect the NSC certificate from the post office. Interest is taxable.

4. Life Insurance Policy –
If you are looking for life insurance cover along with investment, then you should choose one such policy that offers a guaranteed return on maturity. If you have a huge loan to pay off and a family it is better to go for a cheap traditional term insurance where you don’t get the premium back but have a huge insurance cover in case of any untoward incident. Premiums can vary and may be paid monthly, quarterly, annually or in a lump sum depending on the policy you choose. Term of the policy can vary from five years till twenty years and more. Money received from an insurance company as proceeds of an insurance policy (by way of an insurance claim, or by maturity) is generally exempt from tax.

5. Government Infrastructure Bonds –
Low Risk. The main problem about these tax saving bonds are that they are open and available only for a fixed period. As many bonds open around February, they miss the January 31 deadline of submitting investment proof prevalent in most offices. The major institutions that offer these bonds are ICICI, IDBI and Rural Electrification Corporation. Term periods can range from five to seven years and interest may vary from 6 to 9 percent per annum. Forms for Tax Saving bonds are available at local distributors that sit on the pavement outside major banks. Companies like ICICI have not come out with tax saving infrastructure bonds for a long period now.

6. Public Provident Fund –
Low Risk. The investment limit is Rs.500 to Rs.70,000 per year - in multiples of Rs.5. The main problem about this scheme is that you have to remember to invest an amount of at least Rs.500 annually for 15 years or your account will become defunct. Interest rate is 8 percent per annum compounded while the lock in time period is15 years. Another negative point is that as interest rates are on the downside and they are routinely changed by the government they may see a further fall. As interest for the financial year is calculated on the lowest balance after March 5th, make sure you invest before that date. PPF Accounts may also be made in name of your spouse or kids for tax benefit. You can open a Public Provident Fund Account at main post offices, branches of the State Bank of India and some nationalized banks

7. Pension Plans
High Risk. Life insurance companies such as LIC, Tata AIG Life, Aviva, ICICI Prudential and BhartiAxa Life offer such pension plans. On maturity, the investor receives one-third of the amount while the remaining 2/3rd goes into an annuity that provides regular income in the form of pension. Only premiums till Rs.10,000 per year are eligible for deductions from total income. Like Unit Linked Insurance Plans (ULIP’s), a substantial amount of the money invested into Pension Plans goes into paying ‘fund charges’ and commissions. Plus, the annuity received by the insured investor is taxable. Terms can extend from 10 years upwards. Though some return may be guaranteed – a large part depends on the debt market, share market and inflation.

8. Unit Linked Insurance Plan –
A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with a life insurance cover and the premium paid is invested in either debt or equity products or a combination of the two. In other words, it enables the buyer to secure some protection for his family in the event of his untimely death and at the same time provides him an opportunity to earn a return on his premium paid. In the event of the insured person’s untimely death, his nominees would normally receive an amount that is the higher of the sum assured or the value of the units (investments). To put it simply, ULIP attempts to fulfill investment needs of an investor with protection/insurance needs of an insurance seeker. It saves the investor/insurance-seeker the hassles of managing and tracking a portfolio or products. ULIPs have been selling like proverbial ’hot cakes’ in the recent past and they are likely to continue to outsell their plain vanilla counterparts going ahead

9. Senior Citizens Saving Scheme –
– Only people over the age of 60 years and retired personnel over 55 years are allowed to invest in this scheme. This scheme is available at all public sector banks in the country. Investments have to be made in multiples of Rs.1000 till a maximum of 15 lakhs for a period of five years. The deposit made gets an interest of 9 percent per year from the date of deposit which is computed quarterly. Interest is taxable and is deducted at source

Tax Deductions for Expenses

Other than the investments above that qualify for a deduction from total income, there are also certain expenses that are tax deductible such as home loans, education loans, tuition fees, medical insurance premium and treatment for specified terminal diseases. Here is some information about the most common expenses which are tax deductible in India.
1. Home Loan –
If you are repaying such a home loan, the principal amount of the loan taken can be counted as a deduction under Section 80C of the Income Tax Act.

2. Tuition Fees of Children –
The tuition fees of upto two children at school, college and university level may also be taken as a deduction from total income thus reducing the amount on which tax will be calculated.

3. Interest on Home Loan -
According to Section 24, a tax exemption of up to Rs. 1,50,000 is allowed on the interest paid for a home loan in the current financial year.

4. Medical Insurance Premium -
Section 80 D - An amount of up to Rs.15,000 for individuals and Rs.20,000 for senior citizens as premium towards a medical insurance or mediclaim policy is tax deductible. This also includes medical insurance for dependents such as spouse, children or parents on the condition that you paid the premium.

5. Education Loan –
Section 80E - The yearly limit for deduction is Rs. 40,000 (for both the principal and the interest). Only loans taken for higher education - fulltime studies in any graduate or post-graduate, professional, and pure and applied science courses - may claim deduction. The deduction will be available for a maximum of eight years starting from the day you start repaying the education loan.

6. Donations to a charity -
Section 80G – All donations to specific charitable organizations such as the Prime Minister’s Relief Fund, CARE and Help Age India are eligible for a 100 percent tax relief. Donations to other charitable institutions and trusts get only 50 per cent tax relief.

7. Other Deductions -
- Under Chapter VI , there are also other deductions available for handicapped people and medical treatment of disabled dependents (up to Rs.50,000). Also, deduction for medical treatment for specified diseases such as neurological diseases, cancer, AIDS and hemophilia are allowed up to Rs.40,000 for individuals and Rs. 60,000 for senior citizens.
There are other deductions also available on certain other expenses, but since they are not applicable to most tax payers in India, I have not mentioned them. After deducting all the above mentioned investments and expenses from your total gross income, you are left with your’Net Taxable Income’. The next post will provide information on the tax slabs and tax calculation on net taxable income for different categories of people such as male salaried individuals, women and senior citizens.