Prajna Capital - An Investment Guide

For Indians in their 20s and 30s, the accumulation phase—when they earn and save—is of great import for retirement. And insurance products can help THIRTY years ago, a kilo of potatoes sold for less than a rupee in Bombay. Since then, not only has the city changed its name to Mumbai, it but nowhere will you find potatoes selling for less than Rs 10 a kilo. The price of onions has risen more than five times; beans sell for ten times what they cost in 1985. Local transport costs have increased more than 1,000%. Electricity costs almost four times what it did just ten years ago. Even water charges have doubled. Rising salaries help people cope with the increasing cost of living. But what happens when income from regular sources stops, and costs keep rising? A national survey of more than 63,000 households, equally divided between rural and urban areas, conducted by the National Council for Applied Economic Research ( NCAER ), found that only 4% of the people could survive on their...

It is easier to ensure a steady income stream through your retirement years if you plan early Some things are hard to predict and planning for post-retirement is surely one of them. The task is more challenging in the current scenario with the growing uncertainties. You are not sure whether you will drag on till 58 or 60 in your current job and the uncertainty could even come from you if you decide to hang up your boots for entrepreneurship in your mid-40s. However, this is for those who are planning to have a long innings in their current job and have a few decades on hand to plan for retirement. Here's how you can plan for a comfortable retirement: List out expenses Before you set out to plan for your life after retirement, check out your expenses. Some of those expenses may not be visible at present but could prove to be a key factor at a later stage. A classic example of this is medical expenditure. As you are aware, medical insurance too does not take care of medical e...

Average salaries have shot up dramatically in the past few years. But other than government employees, most of us don’t have the luxury of pension support after retirement. The fear many of us have is, who will support us in old age? The answer to all these is to have inflation linked guaranteed pension plans. It is part of prudent financial planning. It is best to start investing in a pension plan at an early stage in life, like 25-35 years, in order to get a s u b s t a n t i a l amount each year once you retire. As the gap between the contribution period and the vesting period reduces, the amount of annuity will become smaller, and then it will be difficult to get a meaningful pension, which also beats inflation Understanding a plan There are two types of pension plans — 1) Stock Market linked and 2) Traditional. The traditional plans would offer a return of around 7%-10% in line with other debt options. Market linked plans could give higher returns in line with the market, but woul...

Almost all the investment advice that is given out to retired people is wrong. In fact, not only is it wrong, it is downright dangerous. Instead of securing their financial future, it tends to push them towards poverty. The longer a retiree lives, the more severe are the ill effects of such advice. I know that's a very strong set of statements that I have started out with but if you bear with me for a few more minutes, I'll show you where the problem lies and why it is so serious. The central premise of almost all the post-retirement investment advice I've ever heard is that retirees' money should always be entirely in guaranteed fixed-income instruments like post office deposits, RBI deposits, bank FDs etc. It is said that retirees should not have any stocks-based investment because they can't tolerate any risk. The problem with such advice is that it completely ignores a big risk that retirees face, that of inflation. None of the fixed-return instruments provide r...

A lot of parents in India postpone or neglect crucial decisions pertaining to their own futures. Throughout their working career, the focus is almost always on providing the best to their children at every level. This often leaves them high and dry and dependent on their children to deal with their needs post-retirement. Such financial mistakes are common and often perpetrated generation after generation. OVERSPENDING New parents are often the biggest spendthrifts. The spending sometimes begins even before your little bundle of joy makes his/ her arrival into the world. Your excitement levels are at their peak and when you enter a shop with baby supplies, almost everything on display seems like a necessity for the little one. But you need to return to ground reality and make the crucial distinction between a necessity and a luxury and incorporate this theory into the making of your budget. PUTTING OFF PLANNING Many people put off the idea of formally making a budget and allocating wha...

People usually underestimate how much they need and over-estimate how much they have. This blog post explains why this is more important while financial planning for retirement IF RETIREMENT planning is crucial to providing you and your loved ones a secure future, the same holds true for post-retirement planning as well. Particularly if you don’t want to run out of money in the sunset years, even while maintaining a comfortable standard of living when you are no longer earning. The ultra-high standards of living that people achieve today using credit cards and other types of credit are based on the assumption that they will have an unlimited future during which they’ll tighten their belts and pay all the borrowed money back. Unfortunately, people can’t carry this lifestyle into retirement unless they become rich, and that’s unlikely. Post-retirement planning, thus, acquires added importance because people usually under-estimate how much they need and over-estimate how much the...

Five major challenges faced: Potential for outliving one’s assets; Threat of rising living costs; Impact of increasing health-care costs; Uncertainty about future level of social security benefits; and Damage to long-term financial security With so much at stake when planning a retirement income stream, it pays to take a step back and see whether your plan takes into account the major obstacles to retirement income adequacy. When you take this big-picture view, consider the five major challenges most retirees face: the potential for outliving one’s assets; the threat of rising living costs; the impact of increasing health-care costs; uncertainty about the future level of Social Security benefits; and the damage to long-term financial security that can be caused by excessive withdrawals in the early years of retirement. Understanding each of these challenges can lead to more confident preparation. Standard & Poor’s suggests you consider these five risks to your retirement income, in...

ALMOST 70% of Indians are worried about outliving their retirement money, yet only two out of ten full-time workers opt for a retirement plan, other than what is mandated by law. More than eight out of 10 Indians (80%) have done no retirement planning independent of any mandatory government plans, said the MetLife surveys — the study of international employee benefits trends and the sixth annual us study of employee benefits trends. Despite worries about funding a comfortable retirement or outliving their retirement savings, many fulltime workers in developing and mature economies, have taken few or no independent steps to plan for retirement. In India, the surveys said, “while almost three out of four employees (71%) say they are concerned about outliving retirement money, only one out of every three (35%) say they have taken steps to determine retirement need; only 20% say they have done actual planning for retirement.” The surveys further point out that while 80% employees in India ...

It is advisable to start investing early in life towards a retirement plan. Here are some tips: Retirement planning should be an essential element of everyone's financial planning. Individuals should start planning for their retirement funds as early as possible in their life. If we look at the way our society is shaping (increase in average lifespan, nuclear families etc), it becomes even more important to plan carefully so that you are totally independent in your golden years. Planning for retirement is a comprehensive process for determining how much money you will need at the time of retirement. Some people feel that retirement planning is important when you cross 40 years of age. It then becomes difficult to build a good corpus within the next few years and eventually these people end up investing in risky investment instruments. They invest their hard-earned money in risky stocks, where the returns are generally not certain. There are many insurance instruments available in...

Indians find life insurance the most suitable retirement planning tool, followed by bank deposits. As much as 75% of the working population and 55% of retired respondents in the country cited life insurance as their primary retirement plan tool. Indians are pretty clear that they do not want to take risks as far as their retirement planning is goes. Therefore, life insurance and bank deposits, which virtually do not have any financial risks, are the most popular. However, two Indians out of 10 find high-risk, high-return products more appealing. This annual study was launched in 2004. This year’s research compares findings in 26 countries that were surveyed. The research has India as a first-time participant. Respondents from Mumbai, Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad and Pune included both working and retired population in equal proportion. As many as 839 persons were interviewed in India, about 400 retired and another 400 working. This is an extract of the study...

It sounds a little odd. Thirty-year-old person is yet to get a receding hairline, but is already talking of retiring. Just five years ago, he did his post graduation from a reputed B-school in India, and is already a vice-president in a large entertainment company. He has had a successful career till date, earning a seven-digit salary. Now, he is planning to throttle his career life even more for he doesn’t see himself working after the age of 50. For that’s the time he is planning to pursue his life-time passion of wildlife photography. This person is not the only one who aspires to retire early. But could that be a reality for this person and many other people? While the idea of a retired life could be a permanent good bye to all the work-related stress, the fear is of outliving your savings. Financial planners, therefore, advices a proper retirement plan to target a kitty that could earn enough income to sustain one’s lifestyle. Take the case of this person who is planning to retire...

Why Do I Need Life Insurance? You need Life Insurance because typically the need for income continues for those who are financially dependent on you, but there is no guarantee of your ability to earn consistently and for the rest of your life. Life insurance can help you safeguard the financial needs of your family. This need has become even more important due to steady disintegration of the prevalent joint family system, and emergence of nuclear families. The need to protect your family's ever growing needs is why you need Life Insurance. Life insurance is designed to protect you and your family against financial uncertainties that may result due to unfortunate demise or illness. You can also view it as a comprehensive financial instrument – as a part of your financial planning offering you savings & investment facilities along with cover against financial loss. By choosing the right policy as per your needs i.e. customized solutions, you will be able to plan for a secure futu...

Life Stages Your insurance need will change as your life does, from starting to work to enjoying your golden years and all the stages in between. Each one of these stages may pose a different insurance need/cover for you. In this section, we have drawn up the basic life stages and help you analyze various insurance needs accordingly. STAGE 1 : Young and Single An important stage where one lays down the foundation of a successful life ahead. Take advantage of the time and power of compounding to ensure that you build up your dreams. Start saving early. Your needs: Save for a home and wedding Tax Planning Save for Golden years STAGE 2 : Just Married Marriage brings about a significant change. New dreams and new opportunities also bring in additional responsibilities. While both of you look forward to a happy and secure life, it is equally important to ensure that eventualities don’t come in the way of shaping your dreams. Your needs: Planning for home / securing your home loan liability...