Skip to main content

Planning finances for retired life


   A few days ago, a senior citizen was asking if he could dabble in the equity markets to earn extra money. Having retired more than a decade ago, this investor is sitting on a corpus which is attractive from an equity point of view. But the problem for the investor is that he needs a regular cash flow for living and hence any threat of capital erosion is completely avoidable.


   When told that the investment amount of Rs 10 lakhs has the potential to even become Rs 8-9 lakh in the short term through equity investments, he was utterly disappointed. He was viewing the equity markets with the hope of converting his one million into 1.5 millions. After all, that's what all equity-related news indicated with a return of 40-50 percent.

 

   First, let us understand why our retired investor is considering the option of investing in equity. A decade ago, immediately after his retirement, he would have been happy to get a fixed return from his money as it ensured regular cash flows without the risk of capital erosion. A lot can happen in a decade in financial markets as it is a long time horizon for any market. It is not very different in the last decade either.


   The equity markets have rallied since 2000 and have gone up by as much as 8-10 times. Interest rates have fallen by as much as 40-50 percent. What has compounded problems for retired investors is the high inflation in the last 12-15 months. Those who bet only on fixed return products are facing the challenge of inflationary pressures. In fact, there is a lesson for any individual planning his postretirement life in the coming years.


   One should take into account a number of factors while building a corpus for life after retirement.
   

Here are some tips that could come in handy:

Choose products that beat inflation    

As pointed out earlier, inflation is a big risk though you can expect it to be moderately volatile in the coming decades. While you can expect the consumer inflation index to grow at the rate of 7-8 percent, it is bound to throw challenges at regular intervals as has been the case in the recent times. Hence, an investor needs to allocate a portion of his corpus in products which can beat inflation in the medium to long terms.


   The choice of products could be gold, equity and property. Under the equity category, products like balanced funds, dynamic equity funds and monthly income plans can do the job.

Mix and match fixed return options    

No retired person can ignore the need for assured returns. Hence, they need to form a good chunk of the portfolio at all times. A basket of instruments like fixed deposits, debentures which are secure and non-convertible, and company deposits with good credit rating can be part of this list.


   In addition, investors can also look at capital-protected schemes and pension schemes. The advantage with the latter is that the investments needs to be made well in advance as longer the tenure, higher would be the corpus. Around one-third of the post-retirement fund needs can be met through this product as annuity after retirement ensures regular cash flows. More importantly, a pension plan does not pose the challenge of re-investment which is a big challenge for any investor in the long term.


   With every decade throwing up fresh challenges, you can expect money management to be a challenging task as the years pass by. Chances are, as an investor, you may have to deal with products that you never came across during the early part of your life.

 


Popular posts from this blog

Real Returns in Investing

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Real Returns in Investing     A Anil Singh (name changed), 44, works with a private company and believes in investing his entire savings in fixed deposits. His financials from the year 2000 till date is given in the table. Anil's savings in FDs gave him an average return of around 8%. The total amount saved over the 174 months (From January 2000 to June 2014) is Rs 49.80 lakh. The value of his investment today is around Rs 66.71 lakh. Naveen Singh (name changed), 44, works in a similar profile like Anil. However his expenses were on the higher side. His financials are as in the table. Naveen invested only in equities. The total amount saved over the 174 months (From January 2000 to June 2014) is Rs 38.40 lakh. The v...

Budget 2014 Highlights for Saving

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   The new finance minister Arun Jaitley has just presented his first budget. What measures does the budget contain that will specifically impact savers and investors? Here they are: 1. Housing loans exemption for self-occupied properties increased to Rs2 lakh: Earlier this amount was Rs1.5 lakhs. This move barely keeps pace with the inflation in asset values.   2. Investment limit under 80 (C) increased to Rs1.5 lakh: This is a good move again and offers some relief to taxpayers.   3. IT exemption increased to Rs2.5 lakh, Rs3 lakh for senior citizens. This comes as a minor relief for taxpayers.   4. Annual PPF ceiling to be enhanced to Rs1.5 lakh, from Rs1 lakh: This is in tune with the change in 80C.   5. Long term capital gains tax for debt funds has been rai...

ICICI Prudential MIP 25 - Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   ICICI Prudential MIP 25     (CRISIL Rank 2)   This scheme was launched March 2004. Please see the chart below for the one, two, three and five years annualized returns from this scheme. The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 24% equity, 72% debt and 4% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.   For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 Leave your comment with mai...

Franklin India Smaller Companies Fund - Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Franklin India Smaller Companies Fund   While the universe of small-cap stocks in India is vast, there are very few equity funds which take on the task of sifting through this space for good long-term bets. Franklin India Smaller Companies Fund has managed this with aplomb. What we like about this fund is its significant out-performance of its category and benchmark over the last four years, and its ability to moderate portfolio risk despite investing in the riskiest segment of the equity market. This fund's stock selection strategy, like that of Franklin India Prima Fund is focused on finding companies that generate positive cash flows across business cycles. High return on investment and manageable leverage are also filtering criteria. Says R. Janakiraman, fund ma...

How to open a Capital Gains Account?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to open a Capital Gains Account? You can open a capital gains account in an authorized bank. The Government has notified 28 banks which can open the Capital Gains Account on behalf of the Government. You have to apply for opening the account by filling out the required application form (Form A) and submit proof of address, PAN card and photograph. You cannot withdraw funds from a capital gains account using a cheque book or ATM, like you do in your normal savings bank account. There are procedures to be followed to withdraw funds from the capital gains account. Investment in Specified Bonds Section 54EC of Income Act provide that if the seller invests whole or part of capital gains arising from the sale of asset in specified Capital Gains, within a period of six months of the ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now