Retirement Planning

Retirement  Planning – Why we ignore this Goal?

 An individual completes his studies around 23 – 25 yrs of age and starts earning. They get married around 28-30 yrs, purchase a house, upgrade cars as per the status (35-45 yrs), pay hefty fees for children education (35-55yrs) continue to support family till children settle down. All of the sudden Retirement is knocking the door (58/60 yrs) where the lifestyle, medical and other expenses will remain and increase with Inflation year on year, and income will STOP/CEASE.

What are the options for Retirees:

•      To look for employment in the second innings:: 

 One of the options is to look for employment and postpone retirement for another 2-5 years maximum. There are chances that one may get the employment of one’s choice or not, compromise on salary etc.

•        To be dependent on Children::

  No one likes to be dependent on their children for their needs.  The way the inflation & expenses are rising, it’s getting the other way round. Many times children look forward to parents for support, It's immaterial to look forward to children for financial support

•        Create a Source of  Alternative Income:: 

 Real Estate Rental Income is one of the options that high net worth individuals opt for but real estate has its own challenges as the premises may or may not get occupied on rent, its maintenance cost, rental yields etc. Some people buy stocks / mutual funds and opt for dividend option which is irregular and dividend percentage varies, so can’t rely on this alternative as well.

•     Create Retirement Corpus during employment years::

It is recommended, to start investing for this goal at the beginning of employment years. This will be more clear with the example below.

 Mr. A is a 30-year-old individual with the monthly expense of 50,000 per month would be required close to Rs. 3 Lakh per month at 6% per annum inflation at the age of 60. He needs to accumulate 6.27 cr by the time he retires to survive for the next 20 yrs taking the average lifespan of 80 years.  He needs to Invest  Rs. 18,300 per month to achieve the requisite amount at 12% return per annum to achieve the GOAL.

On the other hand,  Mr. B 40-year-old individual with the monthly expense of 50,000 per month would be requiring close to Rs. 1.65  Lakh per month at 6% per annum inflation at the age of 60. He needs to accumulate 3.5 cr by the time he retires to survive for the next 20 yrs taking the average lifespan of 80 years.  He needs to Invest  Rs. 35,200 per month to achieve the requisite amount at 12% return per annum to achieve the GOAL..

Similarly,  Mr. C 45-year-old individual with the monthly expense of 50,000 per month would be requiring close to Rs. 1.25  Lakh per month at 6% per annum inflation at the age of 60. He needs to accumulate 2.56 cr by the time he retires to survive for the next 20 yrs taking the average lifespan of 80 years.  He needs to Invest  Rs. 51,500 per month to achieve the requisite amount at 12% return per annum to achieve the GOAL.

Therefore, it is clearly evident that early you start, the less amount one needs to invest on monthly basis to achieve the goal. In the above-mentioned example, Mr. A needs to invest one-third of the amount that Mr. C needs to invest to achieve his Retirement Goal.

Retirement is the only GOAL for which no LOAN is available. It needs to be self-created & self-funded.

Take the first step Today.

Let Your Money Work For You

Are you in need of more money but have no more time to work for it? 
Are you already putting in 80 hours of work a week, leaving little time for your family, or the things you enjoy?
 Stop working for your money and learn how to make your money work for you. Investments are no longer something that is only available for the rich.

Everyday people can put their money to work by investing. Many people are afraid of investments and have heard the awful stories about people who lost all their money on a single investment opportunity and now they are living in poverty. It is these tall tales which prevent people from reaching their financial potential.

A big part of fear is that most people do not understand how the stock market, investing, and financial planning works. Many individuals see investing as a form of gambling which is completely random and based on luck. Investments are not getting rich quick schemes and are not ways to make big money fast. These fantasy investments make for a great movie or story but do not exist in real life. Ten Rupees can never be turned into ₹10 million overnight and through a single investment.

Investments are the way in which you can make your money work for you. There are a number of investments which have almost no risk and require very little money to start. The best asset, the average investor has, is time.

₹1000 invested regularly, can grow to lakhs of Rupees over a long period of time. If you want to stop working those long hours at a job you can't stand and have time to spend with the family without worrying you should consider investing. The best place to begin is to find a stable business, or a mutual fund and invest your money in them.

Mutual funds are a very low risk and worry free place to invest your money. Companies that have a long history of success are also great places to invest. Companies like TCS, Hdfc Bank are corporates which have continued to be successful and not going to go out of business any time soon. They continue to show growth and success in the financial markets.

If you work hard for your money you know the value of putting in a long day's work. You can make your money work for you through investments. If you are interested in developing a financial plan contact a financial advisor who can help you begin your financial independence.

FMP(Fixed maturity Plans) vs FD(Fixed Deposit)

                                        FMP vs FD

                      In the Financial year 2018-2019, it would be best for you to revisit FD investments that you had invested a year ago, and choose to reinvest this year in an instrument, which provides better returns. As American financial specialist Peter Lynch has stated: "Realize what you claim, and know why you possess it.".  Fixed Deposits (FDs) are a well-known investment instrument on account of the guaranteed interest that they offer. Nonetheless, the Mutual Fund industry has created an efficient instrument that is Fixed Maturity Plans (FMPs).

What are FMPs? How would they contrast with FDs?

Fixed Maturity Plans (FMPs)  are closed-ended debt instruments. They have a fixed investment period, for three or more years. They are open for a predetermined period - that is the reason they are called closed-ended funds. These debt instruments invest in such as government securities, corporate bonds, commercial paper, certificates of deposits and treasury bills. Thus, we tentatively know the indicative returns of FMPs.

 Fixed Deposits enables an investor invests his or her funds with a bank for a specified period of time. FD interest rate and maturity amount are known to the investor since the beginning of the investment.  

Highlights of FMPs versus FDs

Fixed Deposit Interest Rates:

• FDs may guarantee you of fixed returns and thus offer greater security, however, FMPs offer higher returns than FDs.
• "In outright terms, FDs today give an interest of around 6.5%  to 7.5%  and in FMPs, it is from 8 -8.5%.
• "FMPs offer higher yields than Fixed Deposits. Bank FDs bring down returns contrasted with FMPs.  If you wish to buy a car three years from now, invest in a Fixed Maturity Plan with a maturity of three years.
• FMPs offer indexation benefit, which states that one can achieve higher returns through FMPs. The returns you get from FMPs are called capital gains and with indexation, it lowers tax outflow resulting in higher returns.

In FDs, the interest gets added to the income of the investor and taxed at applicable tax slab. In FMPs, 20 percent post-indexation benefit above three years, help investors with flat tax payout. To summarise, in FDs, after 30 percent tax, interest is around 4.30 percent to 5 percent against post-tax returns of FMPs - considering a 30 percent tax slab of investors - comes around 7.25 percent to 7.50 per cent.

FMPs give 3% more tax efficient returns than Fixed Deposits.

Gains on FMPs after 3 years are eligible for long-term capital gains (LTCG). Taxation in LTCG is at 20 percent with the indexation benefit. Indexation allows you to inflate the purchase price.

"For an  Indian resident, FMPs don't have any TDS. You have to pay taxes just in the time of maturity (on FMPs.  In FDs, the bank deducts Tax at Source (TDS) based on interest accrued, thus have to pay tax every year.

 If FMPs are less than three years old, then the taxation of FD and FMPs are the same. For FMPs with the maturity of over three years, capital gains indexation benefit makes FMPs far more tax efficient.

Liquidity on FMPs, FDs:

Assume you require cash earnestly. Clearly, you would need to fall back on your investments. FDs here prove to be useful in light of the fact that FDs offer an untimely withdrawal facility. FMPs are locked-in for the period of 3 years and in case you need funds, they cannot be withdrawn.

 Dangers on FMPs, FDs:

Since returns on FDs are known, they by and large influence an investor to feel more secure than FMPs.

"FMPs are presented to the danger of at least one of their fundamental papers defaulting (credit hazard), and this could possibly hamper their profits. They are additionally presented to a hazard known as 'reinvestment Risk' .”

Be that as it may, many people don't know about it yet even FDs are likewise guaranteed just up to a total of Rs. 1 lakh. Along these lines, an FD investor should know about the presence of such dangers.

So which is a superior alternative: FMPs or FDS?

"In the present market situation, the yields have risen, including the short end of the yield curve, making FMPs a powerful alternative to secure better returns.

The coupon rates of securities have climbed however FD rates have stayed low. In such a situation, locking into top notch (AAA-appraised) arrangement of FMPs can convey better returns than FDs.

Dhancreators Recommendation:

Be that as it may be picking amongst FDs and FMPs, as a financial specialist, we suggest investing in the one which suits him/ her the best. Based on your liquidity requirement, returns, and tax efficiency perspective,  a person can choose to invest either in FDs or FMPs.

Happy Investing !!!

Systematic Investment Plan

Want to invest but confused watching current Market Trend? Go for SIP( Systematic Investment Plan)