By Sanket Dhanorkar, ET Bureau | 25 Apr, 2016, 08.00AM IST | Economic Times
The class of 2018 of the Indian Institute of Management-Ahmedabad will pay Rs 19.5 lakh for the two-year course. This is 400% higher than what the premier B-school charged in 2007. If the fees of the two-year management course continues to rise by an average 20% every year, it will cost roughly Rs 95 lakh in 2025.
Even undergraduate courses have not been spared. The tuition fee for engineering courses in the Indian Institute of Technology (IIT) has been hiked from Rs 90,000 to Rs 2 lakh per annum. This is just the tuition fee—the total cost is much higher. At an average running inflation rate of 10%, a four-year engineering course that costs Rs 8 lakh today is likely to set you back by Rs 17 lakh in another eight years’ time.
By 2030, the same would cost more than Rs 30 lakh. If you have not planned well, you could get a rude shock, falling way short of the required corpus when your kid is ready for college. In fact, for engineering and medical aspirants, the costs start even while the student is in high school. Coaching institutes charge anywhere between Rs 80,000-1 lakh a year for preparing the student for the entrance exam.
This sharp spike in fees is a wakeup call for parents saving for the higher education of their children. “Higher education costs have the highest inflation rates in the country. Parents need to realise it is going to be an expensive affair,” asserts Nitin Vyakaranam, CEO, Arthayantra.
This week’s cover story is aimed at parents who are saving for their children’s education. The investment options before them will depend on the age of the child. If the child is 3-4 years old, the investment choices and strategy will be different than for a parent whose child is 15-16 years old. Our story lists the most appropriate investment options for three broad age groups and the strategies to be followed at each stage. Choose the one that fits your situation to achieve your dreams for your child’s higher education.
Higher education costs may be rising at a fast clip, but Delhi-based Balbir Kaur is not perturbed by the projections of future costs. Balbir and her husband Puneet are saving for their son Jivvraj’s higher education. They started small last year with SIPs totalling Rs 5,000 in three mid-cap equity funds.
If they continue with that amount and their funds earn 12% a year, the couple would have roughly Rs 20 lakh by the time 4-year-old Jivvraj is ready for college in 2029. But Balbir has a neat strategy in place. “From this year, I have increased my SIP amount to Rs 10,000 a month. We plan to keep increasing this every year as our income goes up,” she says. If they hike the SIP amount by 20% every year, they will accumulate over Rs 1 crore in 13 years.
The benefits of an early start cannot be stressed enough when you are saving for a long-term goal. If your child is 3-4 years old, you have a good 13-14 years to save. Starting early helps you amass larger sums that may not be possible later in life. Tanwir Alam, MD, Fincart, points out, “The multiplier effect in the power of compounding comes from the investing time horizon; longer time horizons have a higher multiplier effect.”
Starting early also put lesser burden on your finances because it requires a smaller outflow. For instance, if your target is Rs 25 lakh, you need to save only Rs 5,004 a month if you start now. But if you wait for six years, you will have to invest Rs 9,195 a month to reach the target. Wait for three more years and the required amount jumps to Rs 23,875. Worse, you may not be able to invest in certain assets if the time horizon is too short. “If you delay investing, not only do you have to invest a higher amount every month, but it also reduces your ability to take risks,” says Vidya Bala, Head-Mutual Fund Research, FundsIndia.
The investment strategy changes if your child is a little older. Since you have only 5-9 years to save, the risk will have to be lowered. The ideal asset mix at this stage is 50% in stocks and 50% in debt. Instead of equity funds that invest the entire corpus in stocks, go for balanced funds that invest in a mix of stocks and bonds.
If your risk appetite is lower, monthly income plans (MIPs) from mutual funds can be a good alternative. These funds put only 15-20% of their corpus in equities and are therefore less volatile than equity or balanced funds. However, the returns are also lower than those of equity funds. In the past five years, equity funds have delivered compounded annual returns of almost 12%, while balanced funds have given 10.5% and MIPs have given around 8.85%. Investors should also note that the returns from equity and balanced funds are tax free after a year, while the gains from MIPs are taxed at 20% after indexation benefit.
For the debt portion, start a recurring deposit that would mature around the time your child is scheduled to apply for college. If you are in the highest 30% tax bracket, avoid recurring deposits and start an SIP in a short-term debt fund. These funds will give nearly the same returns as fixed deposits but are more tax efficient if the holding period is over three years.
It is also important to review the progress of your investment plan. “You should check every year if you need to step up your contribution towards the higher education kitty,” says Bala. “At times, you may put in a lump sum investment even if you have a SIP running.” Keep monitoring the cost of education on a yearly basis and accordingly adjust your investment requirement.
For parents of teenaged children, the investment strategy should focus on capital protection. With the goal barely 1-4 years away, you cannot afford to take risks with the money accumulated for your child’s education. The equity exposure at this stage should not be more than 10-15%. Kolkata-based Sanat Bharadwaj started investing in a mix of mutual funds and bank deposits for his son Siddhant’s college education almost 12 years ago. But now that the goal is just one year away, he has shifted 75% of the corpus to the safety of a bank deposit.
This shift from growth to capital protection is critical. The 3-4 percentage points that equity investments can potentially give is not worth the risk. A sudden downturn in the equity markets can reduce your corpus by 5-6% and upset your plans. “As you come closer to your target, you should stop SIPs in equity funds and shift to a short-term debt fund,” says Kalpesh Ashar, CFP, Full Circle Financial Planners & Advisors.
As mentioned earlier, the cost of higher education is shooting up. Many parents who started late or chose the wrong investment vehicles may find themselves woefully short of the target. If you face a shortfall, don’t be tempted to dip into your retirement corpus to fill the gap. This is a mistake. “Your retirement should be given priority over your kids’ education,” says Rohit Shah, CEO of Getting You Rich. Instead, you should take an education loan with the child as a co-borrower.
Apart from keeping your retirement savings intact, it will inculcate a savings discipline in your child after she takes up a job. The repayment starts after a 6-12 month moratorium when she completes her education. Banks offer loans of up to Rs 20 lakh for courses in Indian institutes. If your child is keen on a foreign degree, it would require a larger corpus. While banks are willing to lend up to Rs 1.5 crore for foreign courses, they insist on part funding in the form of scholarship or assistance.
When saving for your child’s education, do remember that the whole fianncial plan depends on regular contributions by you. But what if something untoward happens to you? The entire plan can crash. The only way to guard against this is by taking adequate life insurance. A term plan does not cost too much. For a 30-35 year old person, a cover of Rs 1 crore will cost barely Rs 10,000-12,000 per year. That is too small a price for something that safeguards your biggest dream.
Source : http://goo.gl/uTf5qh
Prashant Mahesh | ET Bureau Apr 20, 2016, 05.10AM IST | Economic Times
MUMBAI: Mutual funds and wealth managers have figured a way out to reduce shuffling of equity scheme portfolios by investors in response to short-term swings in the stock market. Financial advisors are asking their clients to link every investment in equity schemes to a goal such as holidays or child’s college education, while mutual funds are pushing products labelled as retirement or children’s fund. Such investment strategies are aimed at encouraging investors to stay put for a longer period.
“When you have defined goals, ability to choose which asset class to invest in and handle volatility in that asset class is better,” says Vishal Dhawan, chief financial planner at Plan Ahead Wealth Managers. Advisors recommend diversified equity or balanced funds with a consistent track record for long-term investments.
To strike a chord with investors, mutual funds have gone one step ahead with some smart branding like children’s education and retirement funds. Axis Children’s Gift Fund, HDFC Children’s Fund and Tata Young Citizens Fund are among the popular schemes in the child savings category, while HDFC Retirement Fund, Reliance Retirement Fund and Franklin India Pension Fund are popular among retirement planners.
“These funds invoke a sense of emotion. When you mark it for a goal, you are mentally prepared to hold it and not withdraw it,” says Harshvardhan Roongta, a Mumbai based financial planner.
Advisors usually suggest investors use the systematic investment plan ( SIP) route to meet their long-term goals. “It is very tough for investors to time the markets and hence systematic investments to help them meet their long-term goals is an option they should consider,” says Sridevi Ganesh, a Chennai-based financial planner.
For instance, for short-term goals like paying school fees for your child which is two months away, investors are asked to invest in debt as an asset class. Similarly, someone aged 35 year old who plans to retire 25 years hence, is recommended an equity fund.
Mutual funds and wealth managers also benefit when an investor stays invested for a longer period.
Source : http://goo.gl/rOyWIy
Don’t tinker with your long-term investment plan. But it is always better to make some critical changes, based on new tax laws and instruments
Sanjay Kumar Singh | April 3, 2016 Last Updated at 22:10 IST | Business Standard
The start of a new financial year is a good time to review your financial plan and take stock of where you stand in relation to your goals. If new goals have emerged, this is the time to make fresh investments for these. While having a steady approach is a virtue here, make some adjustments in the light of developments that have occurred over the past year.
Large-cap funds have fared worse than mid-cap and small-cap ones over the past one year (see table). Over this period at least, the conventional wisdom that large-cap funds tend to be more resilient than mid-cap and small-cap ones in a declining market was overturned. Nilesh Shah, managing director, Kotak Mahindra AMC, offers three reasons. “For the bulk of the previous year, FIIs were sellers of large-cap stocks, whereas domestic institutional investors (DIIs) were buyers of mid- and small-caps. Large-cap stocks are also more linked to global sectors like metal and oil, whereas mid- and small-caps are linked to domestic sectors. The latter has done better than the former, leading to stronger performance by mid- and small-cap stocks. Large-cap stocks’ earning growth decelerated or remained subdued throughout last year while mid- and small-caps delivered better growth,” he says.
Despite last year’s anomalous performance, investors should continue to have the bulk of their core portfolio, 70-75 per cent, in large-cap funds for stability, and only 20-25 per cent in mid-cap and small-cap funds. Large-caps could also fare better in the near future. Says Ashish Shankar, head of investment advisory, Motilal Oswal Private Wealth Management: “IT, pharma and private banks, whose earnings have been growing, will continue to do so. Public sector banks and commodity companies, whose earnings have been bleeding, will not bleed as much. Many might even turn profitable. FII flows turned positive this month and FIIs prefer large-caps. With the US Fed saying it won’t hike interest rates aggressively, global liquidity should improve. If FII flows continue to be stable, large-caps should do better.” Valuations of large-caps are also more attractive.
Among debt funds, the category average return of income funds and dynamic bond funds was lower than that of short-term, ultra short-term and liquid funds (see table). Explains Shah: “Last year, while Reserve Bank of India (RBI) cut policy rates, market yields didn’t soften as much. The yield curve became steeper. The short end of the curve came down more than the long end, which is why shorter-term bonds did better than longer-term gilts.”
Stick to funds that invest in high-quality debt paper, in view of the worsening credit environment. Shankar suggests investing in triple ‘A’ corporate bond funds. “Today, you can build a triple ‘A’ corporate bond portfolio with an expected return of 8.5 per cent. Many of these have expense ratios of 40-50 basis points, so you can expect annual return of around eight per cent. If bond yields come down, you could end up with returns of 8.5-9 per cent. If you redeem in April 2019, you will get three indexation benefits, lowering the tax incidence considerably.” Investors who have invested in dynamic bond funds should hold on to these. “A rate cut is expected in April. Yields will drop and there may be a rally in the bond market,” says Arvind Rao, Certified Financial Planner (CFP), Arvind Rao Associates.
CHANGES YOU NEED TO MAKE
- Fixed deposit rates from banks will be better than returns from the post office deposits in the new financial year
- Choose your tenure first and then, do a comparison of bank fixed deposit rates before making the final choice
- Invest in the yellow metal via gold bonds
- If your liabilities have increased, revise term cover upward
- Revise health cover every three-five years to deal with medical and lifestyle inflation
- Revise sum assured on home insurance if you have added to household assets
- Conservative investors should invest in PPF at the earliest
- Those who can take some risk should bet on ELSS funds via SIP
- Invest Rs 50,000 in NPS
Traditional fixed income
The recent cut in small savings has jolted conservative investors. The rates on these have been linked to the average 10-year bond yield for the past three months. These will be revised every quarter now, make them more volatile. “People who want to invest in debt and want sovereign security should continue to invest in Public Provident Fund (PPF). No other instrument gives a tax-free return of 8.1 per cent with government security,” says Rao.
As for time deposits, financial planner Arnav Pandya suggests, “From April, fixed deposits of banks will give better returns than those of the post office. Decide on your investment tenure, see which bank is offering the best rate for that tenure, and invest in its deposit.” Lock into current rates fast, as even banks are expected to cut their deposit rates.
Tax-free bonds are another good option. Nabard’s recent issue carried a coupon of 7.29 per cent for 10 years and 7.64 per cent for 15 years. Beside getting tax-free income, investors stand to get the benefit of capital appreciation if interest rates are cut.
“People who have some risk appetite may also look at debt mutual funds and fixed deposits of stable companies,” adds Rao.
The sharp run-up in gold prices over three months, owing to the rise in risk aversion globally, took most people by surprise. The sudden spurt emphasises the need to stay diversified and have a 10 per cent allocation to the yellow metal in your portfolio. However, instead of using gold Exchange-traded funds (ETFs), which carry an expense ratio of 0.75-1 per cent, invest via gold bonds, which offer an annual interest rate of 2.75 per cent. The Budget made gold bonds more attractive by exempting these from capital gains tax at redemption.
Start investing in tax-saving instruments from the beginning of the year. “Don’t leave tax planning for the end of the year, otherwise you may have to scramble for funds,” says financial planner Ankur Kapur of ankurkapur.in. For those with the money, Pandya suggests: “Invest the entire amount you need to in PPF before the April 5. That will take care of tax planning for the year and you will also earn interest on your investment.”
Investors with a higher risk appetite could start a Systematic Investment Plan (SIP) in an Equity Linked Savings Schemes (ELSS) fund, which can give higher returns. “If you invest early in the year via an SIP, you will reap the benefit of rupee cost averaging,” says Dinesh Rohira, founder and Chief Executive Officer, 5nance.com. Pankaj Mathpal, MD, Optima Money Managers suggests linking all tax-related investments to financial goals.
If you live in your parents’ house and pay rent to them to claim House Rent Allowance benefits, which is perfectly legal, get a rent agreement prepared.
With 40 per cent of the National Pension System (NPS) corpus having been made tax-free at withdrawal in this Budget (the entire corpus was taxed earlier), this has become more attractive. “Open an NPS account if you have not done so already and enjoy the additional tax deduction of Rs 50,000,” says Anil Rego, CEO & founder, Right Horizons. In view of the low returns from annuities, into which 60 per cent of the final corpus must be compulsorily invested, don’t invest more than Rs 50,000.
Tax deduction under Section 24 is available on the interest repaid on a home loan. “Buying a property to avail of the benefit is not advisable if the family has a primary residence,” says Rego.
While reviewing your financial plan, check if the term cover is adequate. A family’s insurance cover should be able to replace the breadwinner’s income stream. Financial planners take into account household expenses, goals like children’s education and marriage, and liabilities like home loans when deciding on a person’s insurance requirement. “If goals have changed or liabilities have increased, raise the amount of cover,” suggests Mathpal. Kapur says the premium rate is likely to be lower if you buy the term plan before your birthday.
Your health insurance cover might also need to be raised to take care of medical inflation. The same holds true for household insurance if you have reconstructed your house and the structure has become more expensive, or if you have added expensive assets. Rohira suggests buying add-on covers like accidental insurance and critical health insurance for comprehensive protection.
By Gargi Banerjee | May 21, 2015, 11.14 AM IST | Economic Times
Want to get over with buying an insurance policy at one go because you have some money lying idle? A single premium insurance policy is just the thing for you then. As compared to a traditional or a regular premium insurance policy where you pay insurance premiums at periodic intervals, this is a onetime payment solution for those who do not want to get into the hassle of periodic payments.
Once the premium payment has been made, you become the owner of a policy with a specific death benefit. It is literally a “fill it, shut it and forget it” kind of a policy, as you do not have to worry about paying any further payments or the lapse of your policy in case in forget to make any payments. All major insurers provide single premium life insurance policies for the benefit of their customers and you can use the help of a policy aggregator website to find out which one works best for you.
When should you buy a single premium policy?
Most people prefer to buy a single premium life insurance policy when they have a lump sum available with themselves. It may be a hefty tax fund, a cash gift from a relative an inheritance or some windfall gains in case of business owners. If you do not wish to spend this money right away and are wary of investing it in the markets, or you think there is some more insurance cover you could do with, you can certainly opt for a single premium life insurance policy.
Protect your wealth against taxation
A single premium life insurance policy provides you protection against the axe of taxes. You are given exemption of upto R 1.5 lakhs when you invest in a single premium life insurance policy. Further the sum assured is also tax free in the hands of the receiver. God forbid if something were to happen to you, your beneficiary would receive the money completely tax free. However do bear in mind, that on a single premium life insrance policy you will get the benfit of tax exemption only once, as you are investing in it for a single time only.
Forget about lapses
Since the policy is paid up in full upfront you never have to worry again about the policy getting lapsed in case you forget to pay the premium. It is valid till the entire term of the policy and renders the sum assured after the policy term comes to an end. Creates cash value.
When you make the payment of single premium on a policy you are creating an asset for yourself. In case you need to avail of a loan facility, this can come in handy and can be used as a collateral against your loan. Besides, the cash value of the investment you have made accumulates every year, without you having to invest year after year.
Thus as you can see, single premium life insurance policies, though usually not the preffered vehicle for securing one’s life, can certainly offer some benefits. But the largest factor you should keep in mind is the affordability part of it. So if you can think of sparing the lump sum and locking it away to take care of your insurance needs, go ahead and get yourself that single premium insurance policy.
By Vivek Law | Last Updated: February 20, 2016 | 16:13 IST | Business Today
The Budget may not have much for you. So, it’s best to plan your finances in such a way that this does not matter. India is perhaps the only country where the Union Budget is almost like a carnival. What is otherwise meant to be a statement of the government’s finances is a lot more in India. It is also a vision statement of the government’s policies. But that is hardly the reason why every Indian citizen looks forward to it and why it is covered in a high-decibel manner across the media. The reason is: Tax.
Unlike in most countries, the government tweaks tax rates, exemptions and deductions, almost every year. Consistency is not our forte. It is, therefore, not surprising that we all stay glued to the TV to listen to the Budget speech to figure out whether we need to pay more taxes, which product will be cheaper or expensive and, above all, which new products will we now be able to invest in for saving tax. In India, it is the government that does our financial planning. It decides which products we should put our money in by identifying products that qualify for tax deduction. It keeps changing the list every year. And most citizens merely follow the direction given by the government as product manufacturers line up one product after another with one simple hook: “Save Tax”.
Never mind if the product is suitable for us or not. As long as it provides a tax break, we must buy it, we are told. And most of us take the bait and buy it too. Should we save tax? Of course we must. But should we focus on financial planning or merely on tax planning? Tax planning is an integral part of financial planning. The focus should be first on drawing up our financial plan. On finding out our earnings and expenses. On figuring out our Tax rates, exemptions and deductions are tweaked by the govt almost every year By Vivek Law goals in life. On figuring out our need for money in the short term (one-two years) and the long term (more than five years). Once this is done, we must figure out how much to put in equity and how much in debt. How much to set aside for buying our home and how much to set aside for gold. But before all this, have a health insurance policy, and if you have a dependant, a term insurance as well.
After this comes the bit about picking products. The remarkable thing about our successive governments has been how they have clubbed together everything in the bracket of products that allow us tax deductions and exemptions. So, for example, your children’s school fees as well as your provident fund are eligible in the same category. So are your insurance and equity-linked savings scheme (ELSS) investments. There is a separate category for health insurance as also for the National Pension Scheme.
In other words, once you have figured out your financial plan, putting aside money to make the most of tax breaks is easy. What can be dangerous is doing it the other way around. For example, if you do not need a ULIP or an endowment policy, and buy one just because your agent tells you that it gets you a tax break, it is disastrous for your financial plan. Similarly, putting all your money in a PPF account may not be prudent either. Sound financial planning is about asset allocation. Not putting all your eggs in one basket.
Financial plans are also not made for one year. Yes, one must look at one’s financial plan periodically but not change it every year just because the government decides to make changes to the tax-saving products’ list in every Budget. In fact, the government needs to get out of the business of deciding where we invest. It needs to segregate expenditure and investment and not put them in one basket. We are a nation of savers and are laggards when it comes to investments. So, what would I expect from the finance minister this Budget? Given the rather stressed condition of the finances, it would hardly be prudent to expect any great tax breaks from the finance minister. Instead, what would be easy to do is to simplify the sections under which we get our tax breaks. Put expenditure—school fee, home loan etc—in one basket and put core investment products—ELSS, ULIPs, PPF etc—in one.
(In association with Mail Today Bureau)
Source : http://goo.gl/2HrmoK
Sanjay Kumar Singh | New Delhi Feb 15, 2016 10:44 PM IST | Business Standard
With the Sensex down 20.64 per cent since the closing peak of January 29, 2015, investors, especially those who entered the equity markets for the first time in the post-election rally, are experiencing a lot of pain. But, panicking now would only hurt them further. Some tips on what they should do to survive this downturn.
Ignore volatility: Investors need to learn to ignore volatility – a part and parcel of equity investing. “If your investment horizon is long and you have made sound investments in a diversified portfolio, do nothing,” advises Amar Pandit, founder and CEO, My Financial Advisor.
According to Manoj Nagpal, CEO of Outlook Asia Capital, only tactical investors lose money in a downturn due to their short investment horizon. “Longer-term investors can just stay invested and ride out the downturn.”
This piece of statistic should reassure investors. “If you had invested in the Nifty on any day in the past 20 years and stayed invested for at least seven years, you would never have made losses,” says Kaustubh Belapurkar, director of manager research, Morningstar India. A long investment horizon is, thus, the best antidote to volatility.
Avoid market timing: Don’t exit the markets now, thinking you will get back in time for the next rally. It has been proven time and again that no one can time the markets to perfection consistently. The best course during a downturn is to stay invested. Nagpal says people try to time the market because they believe it is the smart thing to do. “Our experience says it is not smartness, but discipline that leads to wealth creation,” he adds.
Continue your Systematic Investment Plans (SIPs): Rupee-cost averaging (the purchase of more units at lower prices) boosts long-term returns; so stopping your SIPs during a downturn is the worst thing you can possibly do. “An SIP of one or two years won’t always fetch you positive returns; so you must run it for at least 5-10 years,” says Nagpal.
Rebalance portfolio: The weight of equities declines in your portfolio during a downturn. If you have the risk appetite, deploy more of your fresh money in equities and benefit from the lower entry prices. Do so gradually over the next three-to-six months. Only capital that will not be needed over the next five years should be deployed. Don’t invest borrowed money.
Reduce exposure to mid- and small-cap funds: Ideally, 50-70 per cent of your portfolio should be allocated to large-cap funds and 20-30 per cent to mid- and small-cap funds. Owing to the run-up in mid-caps over the past two years, the weight of these funds would have increased in your portfolio. Pare your allocation to these more volatile funds.
Don’t redeem now when net asset values have declined so much. “Allocate fresh money to large-cap funds to reduce exposure to mid-and small cap funds,” Belapurkar adds.
Invest across investment styles: Instead of investing only in growth funds, have some exposure to value and dividend yield funds, which invest in low-beta stocks and hence are more resilient during a downturn. “A 15-20 per cent allocation to these funds will help protect your capital to some extent,” suggests Belapurkar.
Diversify internationally: To reduce country-specific risk, invest at least 10-15 per cent of your equity portfolio in international funds. Do so via globally diversified international funds. US-focused funds, which invest in US-domiciled multi-national companies, are another good option.
by Sanjiv Singhal | ScripBox.com
Recently, a friend of mine called me – her voice brimming with excitement. She was only a lakh short of 10 Lakhs in her Scripbox account. She started investing very recently and could not get over the fact that in a fairly short time, she was able to accumulate that amount.
The word millionaire does have a nice ring to it. In the Indian context the big indicator of wealth used to be ‘lakhpati’ but with inflation eating away at the value of our earnings, a million or 10 lakhs is now a good goal to aim for.
But, for a lot of young earners starting out on their first job, it seems impossible to have that much money. This article will show you how you too can be a millionaire. All you need is a simple, easy to follow plan.
Let’s say you are a 22 year old making Rs 25,000 a month, and you can save Rs 5000 to begin with.
Here’s your plan:
Year 1: Save Rs 5000 per month and invest in liquid funds or a recurring deposit. We recommend a debt fund because it has no TDS.
Year 2: Increase your savings by 10% to 5500 per month (We’re sure you’ll get a salary hike!) and invest it in liquid funds.
Year 3-8: Again increase your savings by 10% every year but now start investing it into tax saving equity funds. So Rs 6100 in year 3, Rs 6700 in year 4 and so on.
By the time you are thirty, you can expect to have more than Rs 10 lakhs!
*Equity growth is illustrative. It will never grow at a steady pace as shown. Markets tend to fluctuate and you will see large ups and downs.
On your way to becoming a millionaire, you would also have achieved the following 2 things:
1. By the end of year 2, you would have created an emergency fund of Rs 1.35 lakhs or approx. 4 times your salary. This is why we don’t recommend starting with equity in the first year itself.
2. You would not have needed to worry about tax saving investments every year.
Most important, you would have contributed only about Rs 7 lakhs to get to that 10 lakhs wealth. The rest would have come from earnings on your investments.
Tip: if your salary goes up by 20%, you should increase savings also by that amount – you will get to your goal faster.
What if you can only save half this amount?
The amazing part is that it won’t take you twice the number of years to get there. In only 3 more years (when you’re 33), you can get to your million!
And of course if you save more, you get there faster.
What after the first million?
Just keep saving 20-25% of your income each year in a combination of debt and equity funds and you shouldn’t have to worry about a thing. You could also adopt this simple financial plan. (refer link at bottom)
So, no more excuses. Take your first step towards your first million today.
Note: We’ve assume 8% return on your debt fund investments and 14% on equity funds. The historical returns for equity are higher but assuming a lower return is good for planning as the rates of return are not fixed.
Source : https://goo.gl/Rr7zOp