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May 28, 2013 03:40 PM IST | Source: CNBC-TV18

Estate planning: 3 things to remember

Estate planning is consolidating a person's wealth, preserving it and finally transferring it to the next generation.

In an interview to CNBC-TV18, personal finance expert, Feroze Azeez, Anand Rathi Private Wealth Management explained the importance of estate planning and how one should go about it.

Not-so-good investment options for retirement planning

Below is the verbatim transcript of Azeez's interview with CNBC-TV18.

Q: Whenever we talk about retirement, the immediate concern is to plan the finances, but what often gets neglected is the estate planning. What are the key points that should be kept in mind and how should someone go about organising the same?

A: When it comes to retirement people plan their finances but they fail to look beyond retirement and do their estate planning, which is an important concept of personal finance which has got neglected.

Speaking about estate planning, it is very critical to look at what is estate planning. Estate planning is nothing but a concept of consolidating a person’s wealth, preserving it and managing and finally transferring it to the next generations. Therefore, this is nothing, but an estate planning.

Coming to the point of what somebody should keep in mind when he is doing an estate planning. A person should take three steps, which are very important in the same given chronological order to make sure that the estate planning is holistic and fulfilled in the right fashion. The first step, which is most important, is to draw a balance sheet of assets and liabilities; assets and liabilities, not just from the current assets and the current liabilities also having a projection of what the future is going to be and then arriving at the net asset of an individual.

The second step of estate planning is to understand clearly as what one wants to do with net assets; bucketing them into different allocations.

The third step is the execution of these two in the form of a will and a trust or one of them or both depending on the client’s requirement. Therefore, these are the three basic steps which one needs to be taken care of. 


Caller Q: I can invest Rs 5,000 per month for the next 10 years for my daughter's education? How should I allocate this money?

A: When it comes to education of a child, it an important financial goal. Coming to specific question of what you should do with Rs 5,000. You should split it into two portions; the first portion should go into a child education plan, for example if its Rs 5,000, it needs to be split into two portions; one is 2/3rd, which is Rs 3,500 should go into a child plan and Rs 1,500 could go into global feeder fund. These two as a combination can work wonders for a person who is allocating money for his or her child’s education.

Therefore, Rs 3,500, which goes into a child plan, will have benefits of actually having free switches between debt and equity. In a long run it is very critical in a scheme to be able to move between equity and debt very fluently and very easily without a cost.

If in case of eventuality the parent is no more then the premiums are paid by the insurance company. So, Rs 3,500 goes into child’s insurance education plan and Rs 1,500 goes into a global feeder fund. The Rs 1,500 gets accumulated and if your daughter wants to have an education abroad then she could use dollar exposure to fulfill that need. So, this should be the split.

You should try and scale up the Rs 5,000 over next five-seven-ten years because inflation on education expense has been higher than the normal wholesale price index (WPI) and the consumer price index (CPI) measures of inflation. Therefore, you should ideally allocate more money over the next few years to make sure that you match the inflation rate which is there on education going forward.

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