Skip to main content

How to Make Money Work Efficiently

Some people are better investors and financially more secure because they know how to extract more from every rupee. The consequences of right and wrong financial decisions.


Investing for retirement
The simple act of starting to save early can be the difference between a comfortable and constrained life. Mr Right harnesses the power of compounding and after investing Rs 36 lakh in 30 years, he gets a corpus of Rs 3.05 crore. Mr Wrong puts in Rs 45 lakh in 25 years and still gets a lower corpus of Rs 2.5 crore.

Mr Right
Decision: Started investing at 30 years
Calculation:
Amount invested as SIP in an equity fund earning 12% return Rs 10,000 a month
Period of investment: 30 years
Total amount invested: Rs 36 lakh
Corpus amassed: Rs 3.05 crore

Mr Wrong
Decision: Started investing at 35 years
Calculation:
Amount invested as SIP in an equity fund earning 12% return Rs 15,000 a month
Period of investment: 25 years
Total amount invested: Rs 45 lakh
Corpus amassed: Rs 2.52 crore


Investing for child's goal
Most people confuse investment with insurance, buying traditional insurance plans to fund kids' goals. An endowment plan does not make your money work hard, since you pay a higher premium but get a lower corpus due to low returns of 6-7%, while an equity fund offers over 12% returns over the long term.

Mr Right
Decision: Investing in equity mutual funds
Calculation:
SIP amount: Rs 8,000 a month
Term: 20 years
Assumed return: 12%
Corpus amassed: Rs 72.9 lakh


Mr Wrong
Decision: Buying a traditional insurance (endowment) plan
Calculation:
Monthly premium: Rs 8,000
Sum assured: Rs 9.6 lakh
Total premium: Rs 19.2 lakh
Policy term: 20 years
Assumed return: 6%
Corpus amassed: Rs 28.8 lakh


Tax-efficient investments
Make your money work harder by not allowing tax to eat into investment returns. If you pick fixed deposit, the interest is considered as income and subjected to tax as per your tax slab. However, debt fund returns are capital gains, which invite a lower tax of 20% after indexation, if held for over three years.


Mr Right
Decision: Investing in debt funds
Calculation:
Amount invested in debt funds Rs 2 lakh
Amount after 3 years Rs 2.52 lakh @ 8% return
Capital gain after indexation Rs 31,470
Taxed at 20% after indexation
Total tax: Rs 6,293

Mr Wrong
Decision: Investing in fixed deposit
Calculation:
Amount invested in fixed deposit Rs 2 lakh
Amount after 3 years Rs 2.49 lakh @ 7.5% (compounded quarterly)
Avg interest each year Rs 16,648
Taxed in 30% bracket Rs 4,994 per year
Total tax: Rs 14,983

Taking a home loan
The term of a home loan depends on the EMI one can furnish, which is why some home buyers opt for an extended tenure. They will, however, end up repaying a bigger loan because the longer the term, the higher the interest. So, Mr Wrong will end up buying the same house for a higher price, compared with Mr Right.


Mr Right
Decision: Taking a home loan for 20 years
Calculation:
Loan amount: Rs 30 lakh
Interest rate: 9%
Term: 20 years
EMI: Rs 26,992


Total amount repaid: Rs 64.78 lakh
Total interest paid: Rs 34.78 lakh

Mr Wrong
Decision: Taking a home loan for 25 years
Calculation:
Loan amount: Rs 30 lakh
Interest rate: 9%
Term: 25 years
EMI: Rs 25,176


Total amount repaid: Rs 75.53 lakh
Total interest paid: Rs 45.53 lakh

Dealing with volatility
In a fluctuating market, maintain your asset allocation by rebalancing the portfolio because a skewed allocation is bound to affect your returns. So while Mr Right may seem to work against his own interests by paring down his equity holding after a bull run, he will not suffer as serious a loss were the market to take a tumble.

Mr Right
Decision: Rebalancing the portfolio
Calculation:
Worth of portfolio (80% equity, 20% debt) Rs 1 lakh
Rebalancing when market rises 50% equity, 50% debt
Worth of portfolio @13.6% growth (15% equity, 8% debt) Rs 1.13 lakh
Return during market fall (-5% equity, 8% debt) 1.5%
Portfolio value: Rs 1.01 lakh



Mr Wrong
Decision: Not rebalancing the portfolio
Calculation:
Worth of portfolio (80% equity, 20% debt) Rs 1 lakh
When market rises, no rebalancing done
Worth of portfolio @13.6% growth (15% equity, 8% debt) Rs 1.13 lakh
Return during market fall (-5% equity, 8% debt) -2.4%
Portfolio value: Rs 97,600


Buying life cover
The purpose of buying pure life insurance, or term plan, is to secure the finances of your dependants if you were to die. It is not an investment vehicle to get returns. This is why Mr Right secures a Rs 70 lakh term plan at an annual cost of Rs 7,000, while Mr Wrong is paying a high premium of Rs 96,000 to get an inadequate cover of Rs 9.6 lakh.



Mr Right
Decision: Buying a term plan
Calculation:
For a 30-year-old non-smoker earning Rs 7 lakh a year with three dependants.
Sum assured: Rs 70 lakh
Annual premium: Rs 7,000
Term: 30 years
Total premium paid: Rs 2.1 lakh
Benefits: Lump sum to dependants on death of insured




Mr Wrong
Decision: Buying a traditional (endowment) plan
Calculation:
For a 30-year-old non-smoker earning Rs 7 lakh a year with three dependants.
Sum assured: Rs 9.6 lakh
Annual premium: Rs 96,000
Term: 20 years
Total premium paid: Rs 19.2 lakh
Maturity amount: Rs 28.8 lakh


 
 
 
 
 

 
 



SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Popular posts from this blog

Axis Mutual Fund NFO - Axis Fixed Term Plan Series 18

Axis MF has announced that the NFO period of Axis Fixed Term Plan Series 18 (15 Months) under Axis Fixed Term Plan Series 17 19 has been preponded from February 27 to February 24.        --------------------------------------------- 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 ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDFC Tax Advantage (ELSS) Fund SBI Magnum Tax Gain Schem...

DSP BlackRock Mutual Fund Launches 2 Fixed Maturity Plans (FMPs)

  DSP BlackRock Mutual Fund has announced the launch of 2 Fixed Maturity Plans which are as follows:   Scheme    NFO Opening Date    NFO Closing Date DSPBR FMP - Series 4 - 3M   20-Jul-11   20-Jul-11 DSPBR FMP - 12M - Series 26   20-Jul-11   27-Jul-11       -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/07/buying-hdfc-mutual-funds-online.html   4) Sundaram Mutual Funds: http://prajnacapital.blogspot.com/2011/07/buying-sundaram-mutual-funds-online.html   5) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-birla-sunlife-mutual-fu...

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...

How to get your KYC done Online?

  How can I get my KYC done online? eKYC can be Aadhar-based or PAN-based through certain transfer agents & fund houses Know Your Customer (KYC) compliance is a prerequisite for investments in mutual funds. Investors are required to fulfil KYC requirements with a KYC registration agency once and this is applicable to all investments across funds. Nowadays, it is possible to get your KYC done online in the following ways: Aadhar-based e-KYC: You need to provide your Aadhar number, the registered mobile number (linked with the aadhar card) and the OTP (one time password) which is sent to this registered mobile number. You also need to upload a scanned self-attested copy of aadhar card . Which this method is completely electronic, it comes with certain restrictions. It is available only for investments where the mode of holding is single. Further, a person KYCed through this method and can invest up to a maximum of   Rs   50,000 in one fund house in a financial year. For more d...

Save Tax and Grow Wealth

There's a slight nip in the air and there are a galore of offers from e-commerce bigwigs; the festive season it seems has arrived. While this is certainly a time to splurge and be merry, do consider putting away a little bit of your funds to save tax. Open a PPF account   – Need a secure investment that gives tax free returns? Consider PPF. Withdrawals from PPF are also exempt from tax. You can deposit a maximum of Rs 1,50,000 in a year and earn a tax free interest of 8.7%. Amount deposited each year is allowed a deduction under   section 80C. Section 80C allowed you to reduce your taxable income by the amount you deposit. PPF matures after 15 years, and if you continue to put away money in it, you'll have a large corpus on maturity. Make additional deposits to EPF –   12% of your basic   salary   is deducted each month and deposited in EPF, employer also contributes to it. Find out from your company if they allow you to make additional deposits to your EPF. A lot of companies ...
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