Skip to main content

Consider Inflation while Making Investment Plans

Invest in Mutual Funds Online

Download Mutual Fund Application Forms



External factors such as inflation, government regulations, interest rates and volatile stock markets can have a major impact on the financial planning exercise of an individual. These factors, especially inflation, hurt our standard of living. Rising prices mean you have to pay more for the same goods and services. If your income increases at a slower rate than inflation, your standard of living declines even if you are making more money. When we consider an investment option or a financial product, we need to evaluate the expected rate of return in real terms, i.e. if an investment option offers 10% pre-tax return in 1 year and the current inflation rate is 5% then the 'real' pre-tax return from the investment is approximately 4.8%.


Interestingly, however, a survey conducted by HDFC Life in association with Value-Notes (a leading provider of market intelligence and research) reveals that only 30-36% consumers take inflation into account during financial planning. It was surprising to note that people do not acknowledge that the external factors can significantly impact financial needs.


The survey results show a low level of financial literacy in urban India, both in terms of events (expected, unexpected, and external factors) that need to be considered and the product choices available to mitigate the various life risks. A deeper reading of the findings reveals that consumer awareness (aggregate score of 28.2 on a scale of 0-100) about important events around which they need to plan finances, borders on being extremely poor. Although they score better (aggregate score of 58.3 on a scale of 0-100) in terms of knowledge about the various financial instruments available, the score still falls in the low range. This indicates that although urban consumers have some level of knowledge about various financial products, they appear completely out of sync when it comes to deciding where, when and how they need to allocate their finances.
These findings bring to the fore the core essentials of a financial plan as below:

Identify and quantify your goals

Once the goals are identified, you may approach the target investment across diverse financial asset classes – fixed income, market-linked insurance products etc. However, to arrive at the investment target, you must consider external factors, especially inflation. Let me cite an example. You are 30 years old and plan to retire at 60. Your current annual expenditure is . 3,00,000. This means you would need a corpus in excess of . 2,00,00,000 to maintain your living standards, assuming you live till 85 years and the inflation rate is 4%. To build this retirement corpus, you need to invest . 3,60,000 per annum in a retirement plan that offers 8% returns per annum. Now, how do you arrive at a savings figure that you will need to cover your liabilities and family needs if you die prematurely? Let's consider a healthy 25-year old guy with an income of . 1,00,000 per annum. Let's assume his income will increase at a rate of 10% per annum, while the inflation rate will be 4%. At 50 years of age, his real income would be around . 10,00,000 per annum. However, in case of his unfortunate demise at an early age of 42 years, the loss of income to his family would be nearly . 5,00,000 per annum. This means, if he is investing in a protection plan, he must aim for . 10 lakh life cover.

Revisit, evaluate & realign your investment

Once you have zeroed in on a financial plan, it is important to revisit, evaluate, and realign it periodically. For example, if you have invested in an equity-linked product for your retirement, and if you are nearing maturity, you should consider shifting the corpus to a debt-fund for security of the returns on investment. Certain government regulations or interest rate changes can have an impact on personal finance. Financial plans must be revisited and evaluated in line with macroeconomic situations and life stage needs. A visit to a certified financial advisor can serve useful.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

 

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

 

Best Performing Mutual Funds

    1. Largecap Funds:
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    3. Mid and SmallCap Funds
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    4. Small and MicroCap Funds
      1. DSP BlackRock MicroCap Fund
    5. Sector Funds
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    6. Gold Mutual Funds
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...

Retirement planning from a long-term perspective

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds     `HOW green was my valley'. This title comes from a movie I had watched many years ago. A little boy's journey into adulthood and the story of a Welsh valley's turn of-the-century descent from pristine paradise to despoiled coal mining.   I thought of the title because it is comparatively reflective of a person's life ­ the glorious years when he is earning and the sun down years when he is not having his regular job and, hence, his living standards comes down. The reason is a combination of things. Inflation of food items, transport, increase in health related costs in the later years of life and increase in expenses in almost all basic amenities of life. In India, the social security system is almost non-existent. In some states, wherever it is available, the scales of benefits are extremely modest...

NRI from Canada and US Invest in Mutual Funds in India

Investing in Indian mutual funds by NRIs from US and Canada As of December 2016, eight Indian fund houses were accepting investments from US/Canada-based NRIs Most of the Indian mutual fund houses have stopped accepting funds from US and Canada based NRIs due to regulatory restrictions. This is because the Foreign Account Tax Compliance Act (FATCA) makes it compulsory for all financial institutions in the world to report comprehensive details of all transactions involving US/Canada residents, (including non-resident Indians) to the US & Canada Government. Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund

HDFC FOCUSED EQUITY FUND - PLAN A NFO

HDFC FOCUSED EQUITY FUND - PLAN A NFO opens today               Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a missed Call on 94 8300 8300 --------------------------------------------- Invest Mutual Funds Online Invest Any Mutual Fund Online Download Mutual ...
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