KEEP CALM AND STAY INVESTED
REGISTERED WITH SECURITIES EXCHANGE BOARD OF INDIA
YOU ARE WITH A SHARIAH INVESTMENT ADVISER
Risk Management
- Properly securing your future involves protecting income for you and your family.
- Your assets should be protected against losses you cannot afford to personally absorb.
- You will replace the conventional risk-purchase (insurance) with validated zakat payment.
- Investing in money lending investments will erode your wealth; you will take the route of risk sharing instead
Cash Flow & Net Worth
- Preparing a Data Sheet and Budgeting the flow of income and expenses is the first step to take charge of your finances.
- You will plan and commit to cash flows regarding higher education of your children, pilgrimage, annual zakat payment and start for retirement planning from day one.
- Understanding of good debt and bad debt (free of interest) helps you to control your debts better.
- Your Scorecard – Your Net-Worth to be evaluated annually.
5 Critical Points Regarding Retirement Planning
- It is important to truly get a handle on your desired lifestyle.
- Choosing a rental income for a living is not a first choice but an option after providing for all your need-based goals.
- Never underestimate the impact of inflation and taxes which is a reality as economic theories are biased towards the Capitalists.
- Retirement is not an age but a stage in your journey towards financial freedom. There is no defined benefit from the government, but you need to define your contributions to change your lifestyle from living to work to work for living.
Tax Planning
- Tax avoidance is recommended but not – Tax evasion!
- Zakat payment is not tax-payment.
- Studies have shown that tax-payment and disciplined investing with 3-year lock-in gives a higher return as compared to investment in ELSS and purging on maturity.
- You need to plan for passive income during accumulation stage and not in distributing stage.
- Equity related capital gain / loss harvesting is less taxable and can be used to offset taxable income. Almost all real estate transactions are cash generating means and should be avoided.
- Deductions reduced by non-availability of shariah-compliant opportunities can be off-set with disciplined and transparent transactions in risk participation products.
Things You Must Know About Cash Reserves
- Reserves should be built for an emergency or unexpected investment opportunities.
- Funds-on-call help in stabilizing a portfolio in the event of a downturn in the market or during periods of volatility.
- Too much or too little can derail return on a portfolio
- Six months expense is a thumb rule for emergency fund. This can be tweaked during exceptional situations.
5- Things You Should Know About Debt
- Educational Loan or Mortgage Loan are good debts as they are likely to generate income. However, such debts should not be interest-based but in the form of investments on risk-sharing basis.
- It is desirable to invest for half the period of usual loan period and then take a loan as a self-discipline and it also increases your credit score.
- Restrict your repayment period (recommended) to 5 years in case of capital goods. Committed expenses, including debt and savings need to be accounted for before you allocate money toward discretionary expenses.
- Debt restricts mobility, lowers your resources in times of adversity due to medical or unplanned expenses popping up.
- Credit Cards should be used judiciously and paid-off within the settlement period without attracting any interest. NO COMPROMISE ON LOANS TAKEN ON INTEREST BASIS.
Creating A Sound Estate Plan
- Writing a Will may not be mandatory in Shariah. However, the political, legal and constitutional changes in the India necessitate writing a simple Will for disbursement as per Shariah guidance and registration. This will insulate against any implementation of Uniform Civil Code being considered by Government of India. The law usually is prospective and not retrospective.
- Identify and create an awareness with the beneficiaries, classify the assets – how much is subject to Will and how much is subject to Shariah ruling
- Family Information and Document Organizer Kit (Fidok) – Preparing a list of family members, important document list, contact numbers of family doctor, legal adviser and tax number and national identity data will help the family members in taking charge of the change.
- Identify and name an Executor – someone whom you trust and understands moral responsibilities and can take legal decisions in carrying out your wishes.
- A health-care proxy to determine who will make medical decisions for you when you are unable or incapable of doing so.
The Process
- Completing the Data Collection Sheet – gives an understanding of your present and future needs and aspirations.
- Risk Profiling – A set of questions will be answered to determine the risk appetite perceived and risk that needs to be taken for achieving the goals based on resources, time available and current investments holding.
- Review the current investments and way forward.