Whether you make Income of thousands of rupees a year or hundreds of thousands of rupees a year, a Financial Planning is the first and most important step you can take towards putting your money to work for you instead of being controlled by it and forever falling short of your financial goals.
Financial Planning though the basic view is to analyse save & invest before parting the funds on expenses is very crucial & critical is very much at every stage of Life be it in early 20s, 30s, 40s, 50s, or even at senior citizens becoming 60s & above.
In your early 20's, your inflated sense of self often stops you from asking parents for more money. You soon land in your first job with a humble pay and this sense of not so empty bank account overwhelms you. Suddenly you have the financial capability to fulfil all your needs and the self-imposed restrain is no longer in place. You work hard and play hard. You keep telling yourself, 'I have a lot of money and lot of time to think about real life' and laugh when someone mentions retirement.
As and when you are nearing the end of your twenties and your expenses are climbing up, you are probably wishing you had some savings to aid you in this ever increasing expenses scenario. You are probably not alone in such wishful thinking. A lot of us think in this way and savings for us remains just that: wishful thinking. It is probably high time that you start thinking about saving and investing. Saving and investing is not sacrificing the present needs to fulfil the future ones. Rather it is a means of prioritizing what is important today and what all will be more important tomorrow.
So how can you plan your finances in the 20s? One of the biggest benefits of being in twenties is that time is on your side. With time by your side you can benefit from compounding, the best results of which are felt over a long period of time. If the questions such as: 'Where do I find the money?', 'Why should I invest so early?' are plaguing your mind, it is natural.
To be able to find money to invest within your tight budget may seem like an arduous task because you barely have enough for the things you need. You can never have the money because you do not keep a track.
Thus having a budget is essence, where you can keep track of your spending. This will help you find the areas in which you are over spending or splurging giving you an idea of where to cut back.
Pay your bills on time and avoid paying late charges. Same applies for your credit card bills because interest of which can soar as high as 36% - 48%. Not an ideal scenario if you are willing to save.
'Pay Yourself First' is a concept that is gaining popularity. The conventional norm is to spend first and then save. However, the chances of saving are higher if in the beginning of month you save a certain amount before you start spending.
It is a very common habit amongst us to splurge on ‘Sales’ offered by various merchants by telling ourselves we are saving more than we are spending. The reality is we are only spending and barely saving. Quit buying things that are not needed. This is probably the simplest and easiest way to save: Just a ‘No!’ once in a while.
Savings and investing takes place only when it becomes an emotional priority. This can only occur if you have a list of goals which you think are emotionally fulfilling and financially demanding. Hence, ensuring that you make saving and investing a priority. Savings could be short term goals like a holiday next month or a foreign holiday the year after. It could also be intermediary goals like getting married or saving enough for a down payment for a house.
Do not forget to make the long term goals a priority. It may seem far away in the horizon but starting early will give you the advantage of relaxing in your later years. There is no need to laugh or scoff when someone mentions retirement. It happens to be one of the most important long term goals but often suffers from lack of attention at the right time. Retirement is one goal for which you cannot take personal loan or borrow money. You need the amount that is sufficient for you to live a good life.
Having short and long term goals and starting to invest is the first step in the right direction. However the question still remains: How much is enough? While investing you must remember that what the present cost is and what the future cost will be. Future cost of a goal is usually determined by taking the inflation into consideration. If you are investing for higher education, the current cost of a foreign university is Rs. 25 - 30 lakhs, whereas 18 years from now the costs will approximately be Rs. 76 lakhs. In present day cost you maybe are managing household expenses with Rs. 1 lakh a month. However, to maintain the same lifestyle after retirement, 30 years or more from now on, you will need Rs. 6 lakhs a month.
As you can see the future costs of your goals seem alarming. Hence, it is important to put a price tag on your goal to know at all times the total corpus that your investments must create. You cannot just depend on your current income or future income to fulfil all your goals because as you may have already guessed it may not be possible.
Just because you have too many goals to fulfil, do not hurriedly make bad investment decisions. Start slow and start small. In a Mutual Fund SIP the minimum investment is Rs. 500 a month. It is a good beginning and it inculcates the habit of savings. Once you are consistently investing, increase the investment amount in other funds after a period of time. Even though you may be investing small amounts, equity funds may be a good option. The investment horizon is long and hence, along with high returns the risk also tends to get reduced. Do not put too much pressure on yourself to invest lump sum. Start slow and steadily keep adding to your corpus. We have a habit of underestimating small amounts. However, if you invest a small amount per month in Equity funds and assuming it generates a return of 12% these are the future values that you could possibly generate:
Given below are few of the most availed investment options.
Equity funds are known to generate high returns. But these are often avoided by investors because they are perceived to be risky. While the risk factor associated is not being denied, it can be negated by investing for the long term. The risk in equity investment is reduced when invested for a long period of time along with generation of high returns. Hence, if you start investing in your twenties you can get these advantages.
Debt Funds usually generate moderate returns while risk involved is also moderate. These funds are suitable for intermediary or short term goals as the investors need to generate moderate returns with minimum risk. The Balance Funds can also be an ideal investment in such a scenario because investment is made in both - debts and equities with emphasis on equities.
Public Provident Funds also invests in debt instruments and provides assured returns. National Pension Scheme is managed by the Government and it aims to promote savings for retirement. You might be in your 20s but you still have to start saving for your retirement. NPS maybe a good investment option because the corpus remains inaccessible till retirement and also offers tax rebate.
It is never too early to lay the foundation to your financial future. However, procrastination in the present could cause heavy losses in the future. If you spend a year without any investment then you have dramatically reduced your future corpus. This may sound farfetched in the present but have a look at the table below to understand the future impact of starting or not starting early.
The investor who starts at the age of 25 is a CROREPATI by the age of 50 with a total investment of Rs.15 lakhs he got more than 10 times the investment amount. The investor who started just five years later got a total future value of approximately Rs. 76 lakhs which is not even half the amount that the investor who started at age 25 got. Starting early is clearly marking you for a more secure financial future. Hence, there is no alternative to starting early no matter what the amount, start early and start now.
One of the biggest confusion a young investor faces is extent to which investments are to be made in debt and equity. We have tried to solve the confusion by showcasing the probable asset allocation that you could do in your twenties.
20’s happen to be the most thrilling of all ages. However, it is also the age where one can figure out their priorities and the ways to lead a good life. The foundation of the future is laid in the 20s and to build a strong and stable future you need to lay the foundation now. It is never too early but in the maddening rush to get ahead of the materialistic race, make sure it is not too late. While you have all the investing pressure on your shoulder do not let it break your back. Sit back, relax and have fun. Live your life because that is what you are working towards but do not let the priorities slip out of your mind. So work hard, play hard and invest harder.
Consult your Financial Advisor for Financial Planning.
Thirties are a thrilling decade of your life. The life that you were leading in your twenties may have felt clueless. The advent of thirties brings with it a sense of direction. You feel sure about where you stand in life and in which direction it is headed. If you had already started investing in your twenties then returns are beginning to pile up and the investments are slowly reaping benefits. Thirties bring in a sense of surety that allows you enjoy life without constantly being worried about your dwindling bank account. Financially, you find yourself in a better place and hopefully things are looking promising for you. If you have played your twenties right then thirties will be an easier decade. If not, then the early years of this decade are probably the last chance for you to fix your financial future. It all boils down to your future visions and how motivated you are to fulfil that.
All investments that have been made in your twenties are starting to churn substantial returns. However, you need to assess that are the investments generating the desired returns? You need to identify the underperforming investments and review them periodically. It may not be too late to start making fresh investments to make up for probable underfunding as time is still on your side. Underfunding for a goal in later years can be fatal as the deficiency increases with every passing year. Identifying it at an early stage reduces future financial burden.
Make new investments for any new goals that you may have added. If you have started a family, maybe it is time you started investing for your child’s higher education. Or the house you wanted but could not invest in twenties. You could invest lump sum into already existing schemes if they have been performing consistently and generating high returns. Fresh investments might also be a necessity to bridge the gap between the present value and the future value. Rs. 25 lakhs that might be needed today to afford an education in a foreign university will not be enough 18 years down the line. Assuming inflation steadily raises at 7.5% per annum the expenses will be as high as Rs. 92 lakhs. Hence, your investments have to generate the future value.
In case you have underestimated the need for a retirement account earlier, it needs to be an investment priority. Start exploring options such as Equity Funds for long term investments and National Pension Scheme for retirement corpus. Financial planners and experts stress on the need for a retirement corpus because all the other goals can be fulfilled by means of external borrowing but one cannot borrow for retirement. It is this factor that makes early investment for retirement a crucial factor.
Late twenties and early thirties are the peak time to get settle down and start a family. During such changes in personal life, one needs to have adequate life insurance cover. A life insurance cover should at least be ten times your yearly income. Ideally, you should keep increasing the life insurance as the numbers of dependents grow and also as your income grows. If you have saved in your twenties to start an entrepreneurial venture in thirties then even this move calls for an increased life cover. Life insurance forms the financial cushion in case of your untimely death. It also becomes a means of income in case when the term expires and a lump sum is provided by the insurer.
Growing family, ageing parents and living amidst a whirlwind of uncertain times, having an emergency fund is a must. It is a financial cushion that will save your family during the worst of times. An emergency fund should ideally be 6-9 months of your income. In case you do not want it to stagnate in savings bank account accumulating a meagre 4%, you can invest in short term debt fund or liquid funds which will allow access to these funds with ease. Check for exit load of the fund if redeemed before a year. There are also flexi deposit accounts in banks, where any sum above a specified limit flows into a fixed deposit to earn higher interest. Your money will earn the interest applicable to fixed deposits and will be available to you whenever you need it.
Debts are the leakages that cause your savings to erode. Start paying off debts that you took in your twenties, structurally. Try not to pay off a big amount at once because that dwindle your savings. In case you are planning to take a big loan for a car or home, then it is better that all other debts and credit payments are cleared. This will allow you to make a clear judgement of your financial standing and how far you can stretch the loan amount. In case you are planning to take a home loan in your late 30s, this comes with a tax rebate of Rs. 1.50 Lacs under sec 80C and Rs 2.00 Lacs under Section 24 as interest deduction, during a financial year (these rates are effective from last FY 2014-15). Such a loan might be doubly beneficial as it allows you to purchase your home and provides tax exemptions too.
However, if you have piling credit card bills where the rate of interest can be as high as 36-48% you are putting unnecessary pressure by borrowing more from your future income than you can pay off. This has the potential to adversely affect you financial future. Try and make the minimum payments on time to avoid late charges which adds to the borrowed money.
One of the ways you can balance the inflow and outflow of cash is by having a SIP in mutual fund which will reap the same amount as the total outflow of cash. For example - if you have taken a home loan of Rs. 75 Lacs for say 30 years then your total outgo would be as follows –
You could generate this total outflow in 30 years by just investing Rs. 4,167 through a monthly mutual fund SIP in a diversified equity fund. See the table below and imagine how the power of compounding through a SIP investment balances out the total inflow and outflow of cash.
Twenties is the time when you step into the financial world. You are still learning the tricks of the trade and making small investments to test waters. Thirties is when your portfolio starts to take shape and what you do now determines how it will turn out to be in the long term. Your portfolio should be holistic while you are allocating your assets. You can still afford to incline on equities for returns as you have a long investment horizon. However, importance has to be given to the security provided by debts. Your portfolio should be generating expected returns and also have a debt management system where your debts can be paid off without putting pressure on investment for various goals.
As an investor it often gets confusing the extent to which one should invest in debts and equities. As we discussed, some of the key goals for you in your 30s could be, saving for a house, planning for child’s higher education, create a contingency fund and planning for your retirement. Based on that, the following asset allocation could work for investor in their 30s –
Equity funds – 75%
Bond Funds or other Debt investments – 15%
Liquid Funds – 10%
The apportioning of investments often determines the returns of the portfolio based on age, risk and the investment horizon keeping in mind the individual goals. The goals might vary from one investor to another; therefore, your exact asset allocation will depend on your personal goals, financial and family situation, number of kids and your earning level. It is advisable always to take help of a qualified financial advisor who should work in your best interest.
The thirties are called thrilling for a reason. The reason is that you enjoy life with a certain sense of purpose and security which was missing in your twenties. Financially, this is the last decade where you can start making investments for the long term, if you have not started before and yet generate hefty returns. It is also the decade where you are fulfilling some of your short term or intermediary goals and that leaves you with a sense of fulfilment. This ensures that you make saving and investing a priority as you have already realized saving and investing early can start to make your life easier. While you have a thrilling ride in your 30s, let your financial advisor take care of your investments and help you reach your financial goals.
You may have been repeatedly told that not having a financial plan is a bad plan. If you do not have a concrete plan lined up by your 40s then you may be preparing for a catastrophe. Now you are in your forties and you have seen a fair share of life. The last two decades have been tumultuous as you have been trying to carve your niche in both, professional world and personal life. The decade of forty brings with it a sense of stability as you are aware of where you stand in life. If you have played your last two crucial decades well then from 40 onwards you can start to relax. If you have been delaying the essentials of financial planning then panic alarms are already ringing. By this decade quite a few goals have been ticked off and a few more remains. The most important and crucial goal is retirement. In this decade your career reaches a peak and begins the preparation to retire. While the motto of the last two decades was to accumulate enough wealth to fulfil the financial goals, the motto for this decade is slightly different.
The most important goal of this decade is the retirement planning. Before this you may have invested for retirement making it a secondary investment. However, you cannot afford to do that anymore. If you have not started retirement planning then it is time you started. Give importance to a corpus focused for retirement planning along with retirement solutions like National Pension Scheme. The purpose of a retirement corpus is to ensure you maintain the lifestyle while you do not have steady monthly income. However, in 15 to 20 years the cost of living is going to rise substantially making it necessary for you to create a corpus to sufficiently cover the future cost.
Given above are approximate figures of present and future cost. The inflation for calculation has been assumed to be 7.5% and the time period is 20 years assuming the investor is currently 40 and will retire at 60. While preparing for your retirement you will have to save approximately four times the amount required in present.
By the time you have reached the age of forty you probably hold a senior position in an organization or established in your business etc. Along with the seniority comes a steep salary hike or more income. Increase in income could possibly mean availability of funds. Even though your portfolio might be on track with your goals, it is wiser to make additional or fresh investments. There is no harm if you reach your goals a little early or you have excess funds. You could also add the extra fund to your retirement account because that is the goal you should focus on more than anything else. It would be fatal if you let the extra funds lie idle or spend the entire amount because you feel secured about the retirement portfolio. If you are pumping in extra funds you are preparing for possible shortages in future. Hence, use the extra income as boon and channelize them in your portfolio to get maximum returns.
Emergency funds are usually created to financially support during a situation that you were not expecting but have to take the financial burden nonetheless. In your 40s you need to start getting more careful about your health since we live in hazardous times medical emergencies are best prepared for. Emergency fund also ensures that you are adequately funded without disturbing the funds for the various goals. In your 40s you and your spouse both are ageing and your parents may need immediate medical attention. An emergency fund should have at least six times your monthly income. While your income increases the corpus in emergency fund should increases as well.
To simply define assets are items that generate current or future cash flow. As the income increases instead of investing in items that maybe subjected to depreciation like car it is wiser to invest in items that appreciates. With excess funds available, as a result of your rising income, it makes sense that you invest in these assets. If you have been planning to buy a second home it may be a good idea with the current rise in your income as it is an asset investment and scope for appreciation is higher. An asset like property can also create income at regular intervals in the form of a rent. The closer you get to retirement it is better to reduce your debts. Either pay off your home loan or keep it to the minimum loan payment so that you can continue to get the tax exemptions U/S 8oC. Tangible assets along with the corpus created are what you have to rely on when the regular income stops after retirement.
Asset Allocation is that aspect of your portfolio that you have to keep revisiting continuously to get maximum returns. The new decade of 40s marks that time that you have to revisit and rearrange your asset allocation. It is needless to say that the asset allocation that worked in your 30s may not work in your 40s. Hence, given below are some illustrations of possible asset allocation strategies that you can employ.
In ‘Asset Allocation I’ the risk has been taken to be low and investment horizon is 2-5 years. The shorter is the horizon the lesser is the emphasis on equities and higher on debts. In ‘Asset Allocation II’ risk is medium and investment horizon is 5-10 years. These prerequisites portray asset allocation as 50% in Equities and 50% in Debts. In ‘Asset Allocation III’ the investment horizon is above 10 years and hence the focus is on equity investments and lesser on debt investments. The variables of asset allocation are bound to change with a change in your risk taking appetite and investment horizon. To find out more about Asset Allocation use this calculator. To get your asset allocation right and review of your existing portfolio, advice from a qualified financial advisor is always recommended.
Your forties are that decade that provides security and brings you a decade closer to your retirement. It is that decade that should gear you up to take your retirement goal seriously. Forties allows you to lead a fulfilling life both professionally and personally without the uncertainties that characterize your twenties and thirties. So gear up for this decade and walk another decade by financially securing your life.
This is the most important phase of your life, whereby your earnings are growing alongside your expenses and liabilities are also on a rise. Consult your Financial Advisor for investments and financial planning who will guide you for proper asset allocation and investment to balance your portfolios.
Fifties is an interesting decade as you slow down and prepare for a life of retirement. This decade is the most fulfilling decade as you have amassed respectability in your profession. In your personal life your kids may have already set out on their own ways or are financially independent redeeming you of their responsibilities. Fifties also happens to be the last decade before you settle for your retirement. Hence, this is the last time you give a final push towards your retirement corpus. You maybe are dreading your retirement, apprehensive of the decade that follows the fifties marking the end of your job life. However, the pile of assets that you have created in your working life will be your pillar in your retired life cushioning you with the same sense of security. Here is how you can make the fantastic fifties work for you:
Have Adequate Life Insurance and Health Insurance Cover
In the earlier decades your life insurance covered your spouse, your kids and dependents. However, if you kids and dependents have become financially independent then financially you are no longer responsible for their well-being. Hence, your life insurance cover should be adequate to cover you and your spouse in case of any unforeseen calamities. The reduction in the life insurance cover can be adjusted with the health insurance cover as with the age your health insurance cover should ideally increase. You are now prone to diseases because of ageing and medical bills which burn a hole in your pocket could be financially fatal. Hence, having adequate health insurance cover takes care of any health downfall without causing any financial stress.
You will not be able to utilize the assets fully if they are not debt free. Hence, by the end of this decade it would be an ideal scenario if all your debts are asset free. Home loan, car loan, personal and education loan should be totally paid off so that the last innings of your income is largely utilized consolidation of your savings and investments. Having a loan which might get carried forward to the next decade could eat into your retirement corpus which is meant for your living expenses.
The concept of taking loan is borrowing money not just from any institution but from your future income as well. A loan when it is taken, it is with the assumption that the future income will be sufficient to cover the debt. Hence, a repayment of the loan usually occurs from a regular income. Post retirement one has to rely more on fixed income than on regular income. Taking a loan with in such a financial scenario erodes the fixed income and could be financially fatal.
To simply define, assets are those purchases or investments could provide a lump sum or steady income to the owners. In your 50s when you are planning for your retirement, it may not be a wise idea to manage all your expenses through fixed income. If you have a property which is lying empty then you are not utilizing your asset to the maximum possible extent. If the property could earn inflation adjusted returns then it could be a regular income in the future. If you are planning to make further investments, you are probably confused between a bungalow in the outskirts of the city and an apartment in the heart of the city. A bungalow in the outskirts of the city may have future value but to get immediate returns in the form of rent, an apartment in the heart of the city may be a wise investment. Any asset that might depreciate in the future like a car should be purchased while you were steadily earning.
Lifestyle is the nitty-gritty of our personal living and largely entails how we treat ourselves, our family and people around us. A hefty part of your regular income is utilized in maintaining the embraced lifestyle. The retirement corpus that you have been creating has been done keeping in mind the future cost of such a lifestyle. In your 50s you have to maintain the same lifestyle. Suddenly, if you start living an indulgent lifestyle and plan to continue this then it puts extra pressure on your corpus. You need to start making extra provisions with your income to entail this sudden indulgence. Hence, it is best if you maintain the lifestyle that you have been following to manage within the current regular income and future fixed income.
With every passing decade it becomes essential to rebalance your investments. This ensures that your investments are attuned to your goals. The various goals in your 50s could be aggressively investing in retirement funds, investing in assets with steady returns, generating returns by avoiding volatility and so on. The closer you get to retirement you are looking for stability in your investments. Let us see some possible asset allocation for your investments.
We all hope and pray for long lasting lives but you can save your family from a lot of trouble by drafting your will. Having a will gives you a comprehensive picture of all your assets and investments. In case you are incapable of making financial decision due to health reasons or sudden unavailability the nominees will be able to make financial decisions on your behalf. You will also be relieved that the beneficiaries will receive the assets that you have earmarked for them. You can keep making occasional changes to your will as and when assets are increased or due to the changing circumstances in your family.
You are about to embark in your fifties hoping to making it a fulfilling decade. Retirement which often felt like a goal far away in the horizon is palpably present now. Enjoy this decade as you will have more than enough time to pursue all the hobbies that you left behind to get ahead in life. So go ahead and enjoy this amazing decade because life from here on gets even better. Remember, the financial advisor, based on whose advise you have planned and achieved your financial goals so far, and should continue to be your friend in your fifties as well.
Today’s senior citizens definitely have more savings and investments compared to their parents, when they were retired, but the cost of living has multiplied manifold. Many of today’s retirees, unlike their parents, do not want to be financially dependent on their children’s earnings. While lifespan has increased, sky rocketing healthcare costs are also a serious concern for senior citizens. For senior citizens the four main investment considerations are:-
1. Protection of capital
2. Liquidity of investments
3. Reducing income tax
4. Keeping up with inflation
Some preferred & Recommended Investments at this stage being Golden period of Life &enjoying being senior citizens -
Senior Citizens Savings Scheme (SCSS): This is one of best risk free investment schemes for Senior Citizen. The minimum investment limit in this scheme is र 1,000 and the maximum limit is र 15 lacs. This investment qualifies for deduction under Section 80C of the IT Act. From a liquidity perspective, the scheme has a period of 5 years and carries an interest rate of 8.40 %, one the highest applicable rates for similar instruments. A penalty of 1.5% per cent is levied on the amount deposited, in case the deposit is withdrawn before 2 years and 1% if the amount is withdrawn after 2 years, but before the expiry of the term of the investment. While the returns of SCSS are taxable, if the returns from this instrument do not exceed the basic exemption limit of र 3 lacs, seniors stand to earn tax-free returns. Seniors who have their immediate liquidity concerns addressed though other instruments, should try to maximise investments under this scheme using their surplus funds, since this offers attractive returns and capital safety.
Post Office Monthly Income Scheme (POMIS): This has been a popular investment option with senior citizens for many years. POMIS offers guaranteed 7.60 % annualized returns to investors. The maturity period of these schemes is five years. Premature withdrawals are subject to a deduction of 2% of the amount invested if such a withdrawal happens within three years of investment. After three years, the amount of deduction is 1% of the amount invested. The maximum investment limit in POMIS is only र 4.5 lacs in one account in POMIS or र 9 lacs if the investor is investing in a joint account. There is no Section 80C benefit for POMIS investment. The interest income from POMIS is taxed as per the income tax slab of the investor. With rising cost of living seniors cannot rely on solely POMIS for their income needs. Nevertheless POMIS remains a good risk free investment option for senior citizens
Bank and Company Fixed Deposits: Bank Fixed Deposits have always been seen as offering with safety and convenience. Currently the interest rate is in the range of 7 to 8 %. However, the interest rates are scaling down as in the future as Reserve Bank India implements monetary policy easing. Investors should enquire about interest rates from multiple banks because it differs from bank to bank and can make a significant difference to the final return to the investor. Interest earned by FDs is fully taxable at the applicable slab rate and tax is deducted at source. Fixed deposit issues from various companies offer higher interest rates than bank fixed deposits. However, such issues are limited and investors should note that they carry credit risk. Investors should check the credit rating of the companies before investing in the company FDs. Fixed deposits from companies rated AA and above are pretty safe and carry low default risk. Investors should be on the look for such issues, as these are good investment options.
Post Office Time Deposits: Post Office time deposit is in many ways similar to Bank Fixed Deposits. The current annual interest rate for the five year time deposit is Minimum investment is र 200, and there is no upper limit. Post Office Time Deposit qualifies for Section 80C deduction under Income Tax Act. The interest on Post Office Time Deposit is however fully taxable, as per the income tax slab of the investor
Mutual Funds Balance Funds & Monthly Income Plans: While capital safety is an important consideration when you are retired, with increasing life spans and high inflation, you cannot totally ignore equities. Mutual fund Balance Funds & Monthly income plans are excellent investment options for generating higher returns on your investment with limited risks. These plans invest 20 – 30% of their portfolio in equities, to boost the interest earned from debt investments with higher equity returns. Mutual fund MIPs offer better liquidity than some other investment options discussed above. Mutual funds charge 1% exit load for redemption of units within one year of allotment. After one year there is no exit load. Returns of mutual fund MIPs are more tax efficient compared to other investment options. Even though MIPs are treated as debt funds from a tax perspective, the dividend distribution tax paid by the mutual fund is lower than the tax rate of the investor in the highest tax bracket. Savvy investors can save taxes further by opting for systematic withdrawal plan (SWP) instead of dividends. SWP withdrawals are assessed for capital gains tax. Long term capital gains (more than three years in case of non-equity funds) are taxed at 20% with indexation. Top performing MIPs have given 3 year trailing annualized returns of over 12%. Inflation is a fact of life and over the last few years risk free investments like fixed deposits have not been able to give post tax returns that have beaten inflation. Equity as an asset class can beat inflation and as such should comprise a portion of the senior citizens’ investment portfolio in the right proportion. MIPs are excellent investment options for senior citizens because it can help senior citizens keep up with inflation. You can read about some of the top performing monthly income plans in our article, Top 5 Mutual Fund Monthly Income Plans. Global and domestic economic concerns notwithstanding, the outlook on the Indian equity market is very positive. In fact, most experts believe that we are in the initial phase of a long term secular bull market. Having said that, investors should also understand that mutual funds are subject to market risks and that past performance is not a guarantee of future performance. Therefore they should ensure that mutual fund investments are consistent with their risk profiles.
Liquid funds: Senior citizens should consider liquid funds as an alternative to savings bank. While having an emergency fund parked in savings bank is essential from a financial planning perspective, if you can wait for a day to withdraw the funds, liquid funds are an excellent alternative to your savings bank account. While savings bank interest is usually around 4%, liquid funds provide returns in the region of 8 – 9%. Every bit of extra income is very useful for senior citizens. While liquid funds are subject to market risks, the nature underlying instruments in a liquid fund ensures a very high degree of safety. Withdrawals from liquid funds are processed within 24 hours on business days. Some liquid funds offer cash withdrawal facilities with ATM cards, but most do not. Liquid Funds: When planning your investment in liquid funds, you should note that redemption requests are not processed during public holidays or weekends. Therefore, you should have enough funds in your savings bank account to meet exigencies over weekends and public holidays. Having said that, most of us keep funds in our savings bank that we will not need in the next few weeks or even months. Liquid funds are an excellent destination to park those funds. You can read about top liquid funds for investment in our article, Top liquid funds for parking your surplus cash.
A one size fits all investment solution does not work, because the financial situation and investment objectives of every individual investor is different. Senior citizens should consult with their financial advisors to discuss the best investment options that are suited to their specific needs.
| Investment Options | 25-35 years | 36-50 years | 50-60 years | 60 years & Above |
|---|---|---|---|---|
| Bank FD's , Investment in Post Office,Mutual Fund Fix Maturity Plans and debt funds/Liquid Funds/Bonds |
5% | 10% | 30% | 40% |
| Insurance and Health Insurance | 10% | 10% | 5% | 10% |
| Gold - Silver | 5% | 10% | 10% | 5% |
| Equity Mutual Fund Scheme/ Balanced Funds | 45% | 40% | 40% | 40% |
| Shares, (Commodities - High Risks) | 20% | 10% | 10% | 5% |
| Real Estate | 15% | 20% | 5% | 5% |
| Total Investments | 100% | 100% | 100% | 100% |
** This is a generalized asset allocation statement, Asset Allocations, may be modified/applied taking into consideration Individuals Investment Objectives/Goals, Risk Apetite, Investment Horizon, Profile, Portfolio Balancing's, etc .**