Skip to main content

Stocks for retirement?

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

It's time for a reality check for government employees who believed their NPS investments will outperform the traditional Provident Fund. Despite a 15% of equities, the NPS funds for government employees have given a return of 8.78% in the past five years, compared with the 8.62% return delivered by the Provident Fund during the same period.


Recent reports have suggested that NPS funds have given good returns. But those calculations were based on point-to-point NAV returns and did not truly capture the returns of monthly investments. This is why our calculation is based on the monthly contributions starting April 2008 till March 2013 to the NPS fund managed by the UTI Retirement Solutions. Put simply, these are the SIP returns of the fund for the past five years.


Pension Fund Regulatory & Development Authority (PFRDA) chairman Yogesh Agarwal is not surprised by these numbers. There can't be a big difference because the government allows only 15% of the corpus to be invested in stocks. The PFRDA wants the government employees to be allowed the same investment choices in the NPS as other investors. A private sector investor in the NPS can choose his asset allocation. Bullish investors can put up to 50% of their corpus in equity funds while risk-averse can allocate their entire portfolio to debt funds.


But a higher equity exposure may not have helped boost returns. In the past four years, the equity funds of the NPS for the general public have lagged debt funds. The calculation is based on the NAVs of the first reporting day of every month since June 2009. Aggressive investors, who allocated the maximum 50% to equity, have earned an average 7.3%, while balanced investors earned 8.3%.


However, the biggest surprise was the return earned by ultra-cautious investors, who steadfastly stayed away from the stock market. They have earned an average 9.74%.

Should you invest in equity?

For investors the big question is: should they expose their retirement savings to a volatile asset class such as stocks? Central PF Commissioner It is possible to earn good returns without compromising on safety. The EPFO has recently liberalised the investment norms for the Provident Fund, which could help the EPF earn 50-75 basis points higher returns.


However, market experts scoff at this ultra-cautious approach. Their contention: a 100% debt portfolio will never beat inflation. Financial planners too insist that you can't ignore equity when investing for retirement. You need to have some portion in equity, otherwise you might miss your pension target.

How much is enough?

The problem lies in defining the 'portion' as a percentage of retirement savings. Every individual has a different risk profile and various investment options offer different levels of equity allocation. The NPS funds for government employees put 15% in stocks and private NPS investors can invest up to 50% in this volatile class. If you have a unit-linked pension plan from a life insurance company, you can put up to 90% of your investments in equity.


There's also a rule of thumb that says one should have an equity exposure of 100 minus one's age. So, at 30, you should have about 70% of your portfolio in equity. At 55, the exposure to this volatile asset class should have been pared down to 45%. In fact, the NPS offers an auto choice where the investor's age decides the equity exposure. The 50% allocation to equity reduces every year by 2% after the investor turns 35, till it becomes 10% at the age of retirement.


So, how much should you allocate to equity when saving for retirement? The portfolios of some of the top performing MIP mutual funds provide some answers. These schemes have 15-25% of their corpus invested in stocks. The equity exposure of the Birla Sun Life MIP II Savings 5 is capped at 10% and has averaged 6.8% in the past five years. Yet, its SIP returns since April 2008 are marginally lower than those of the other top performing MIPs. So, higher returns don't necessarily require higher risks.


Retirement is a non-negotiable goal. The worst thing you can do is to be lured by returns. Studies have shown that when it comes to long term goals such as retirement, the time at which you start saving and the amount you put away have a greater bearing on your final corpus than the return that your investment earns. In the organised sector, retirement savings are compulsory, automatic and the quantum is linked to the income. As the income of the investor goes up, so do his savings.


In fact, superannuation benefits alone can fulfil the retirement needs of an investor if he is disciplined. If one starts putting 2,500 a month in the PF or the NPS at 25 (with a matching contribution from his employer and a 10% increase in salary every year), even a modest return of 8% will grow his corpus to 2 crore by the time he retires at 60. 

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 in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax PlanInvest Online
  2. HDFC TaxSaverInvest Online
  3. DSP BlackRock Tax Saver FundInvest Online
  4. Reliance Tax Saver (ELSS) FundInvest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) FundInvest Online
  7. SBI Magnum Tax Gain Scheme 1993Invest Online
  8. Sundaram Tax SaverInvest Online
  9. Edelweiss ELSS Invest Online

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

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      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 Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFundsInvest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...
Read more

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...
Read more

Am you Required to E-file Tax Return?

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   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...
Read more

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
Read more
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