Tagged: Retirement

NTH :: Should EPFO subscribers hike their ETF investments?

The whole theme of EPFO providing these choices to increase and reduce equity exposure is a case of duplication of effort and design. Financial experts are advising investors to leverage existing options.
Hiral Thanawala | May 02, 2018 11:28 AM IST | Source: Moneycontrol.com


There is good news for over five crore subscribers of retirement fund body EPFO. Soon they may have an option to increase or decrease investments of their provident fund into stocks through exchange-traded funds (ETFs) in the current fiscal. In its last meeting, the Central Board of Trustees decided to explore the possibility of granting an option to increase or reduce equity allocation to subscribers contributing through ETF above the 15% cap.

The Employee Provident Fund Organisation (EPFO) had started investing in ETFs from investible deposits in August 2015. In FY16, it invested five percent of its investible deposits, which was subsequently increased to 10 percent in FY17 and 15 percent in FY18. However, subscribers were not at all pleased with this increase in exposure to equities. There were some who didn’t want to risk their retirement corpus built through the EPF route. While other subscribers were keen to increase exposure to equities for better returns in the long-term.

So, what advice do financial experts have for EPFO subscribers looking to increase their exposure to equities through the ETFs route when the option is opened up?

Who should increase or reduce investments in ETFs?
Several investors are not reasonably patient with their active investments and panic when they see volatility in the market. Chenthil Iyer, a Sebi registered investment adviser and author of ‘Everyone Has an Eye on Your Wallet! Do You?’ said these investors generally invest only in fixed deposits and post office schemes. “For such investors, increasing the equity exposure through EPF route may be a good option as it is a passive mode of investing and ensures a long-term commitment.”

For investors who manage their active investments and have a well-diversified portfolio, Iyer recommends a minimum equity exposure.

Arvind Laddha, Deputy CEO, JLT, Independent Insurance, has a word of caution. “In the past, there have been negative returns for consecutive two-to-three years or even more from equity markets and this could compromise the savings of EPFO subscribers which they are not used to.”

As not all investors understand the risk of equities and their volatile nature of returns, Kalpesh Mehta, Partner at Deloitte India, feels an investor should also consider one’s age, risk appetite, financial obligations and total net worth before increasing exposure to equities through ETFs.

Benefits of increasing investments in ETFs
Here are the benefits of increasing investments in ETFs through EPF contribution as explained by Amit Gopal, Senior Vice President, India Life Capital: 1) Regular monthly SIP because of mandatory contributions; 2) Inexpensive as employees (contributors) don’t have to pay fund management fees in the current model of EPF; and 3) Tax advantages on contributions. To this, Colonel Sanjeev Govila, CEO, Hum Fauji Initiatives lists institutional framework taking care of selection and research of equities while investing.

Drawbacks of increasing investments in ETFs
Gopal highlights drawbacks such as insufficient administrative track record, illiquidity associated with a retirement fund product, absence of choice in fund manager and products.

To this, Iyer cautions, “Putting the responsibility of equity exposure of this fund on the individual may expose it to the vagaries of the individual’s risk perception, leading to possible over-exposure.”

Make EPF more investor friendly
EPF needs to be investor friendly with additional facilities of enhancing and reducing equity allocation which is likely to be made available in the coming two-to-three months. Iyer feels periodic electronic statements should be mailed to the subscribers which clearly mentions the amount and number of units available in ETF.

“Further an automatic mode of distributing the contribution into equity and debt should be made available based on the age of the individual just like NPS.” This, he feels, will ensure minimum manual intervention in decision-making with regard to equity exposure.

According to Goyal, while EPFO have described some methods of passing on returns, nothing concrete has been implemented. “It is unclear how they will ford the system and governance challenges that could arise.”

It would therefore be good if these issues are resolved before increased allocation and employee choices are implemented. An investor needs to keep a track of this developments for their own benefit.

Leverage on existing options instead of duplicating efforts
The whole theme of EPFO providing these choices to increase and reduce equity exposure is a case of duplication of effort and design. Financial experts are advising investors to leverage existing options.

“The NPS already provides the same structure and benefit. Integrating it with the EPFO and permitting portability is a more efficient way of enhancing employee choice. NPS already has the architecture and track record of administering an employee choice model,” Gopal added.

Source: https://bit.ly/2IdyOMu

ATM :: Pick the best NPS funds

Babar Zaidi | May 8, 2017, 03.15 AM IST | Times of India


Though it was thrown open to the public eight years ago, investors started showing interest in the National Pension System (NPS) only two years ago. Almost 80% of the 4.39 lakh voluntary subscribers joined the scheme only in the past two years. Also, 75% of the 5.85 lakh corporate sector investors joined NPS in the past four years. Clearly, these investors have been attracted by the tax benefits offered on the scheme. Four years ago, it was announced that up to 10% of the basic salary put in the NPS would be tax free. The benefit under Section 80CCD(2d) led to a jump in the corporate NPS registrations. The number of subscribers shot up 83%: from 1.43 lakh in 2012-13 to 2.62 lakh in 2013-14.

Two years ago, the government announced an additional tax deduction of `50,000 under Sec 80CCD(1b). The number of voluntary contributors shot up 148% from 86,774 to 2.15 lakh. It turned into a deluge after the 2016 Budget made 40% of the NPS corpus tax free, with the number of subscribers in the unorganised sector more than doubling to 4.39 lakh. This indicates that tax savings, define the flow of investments in India. However, many investors are unable to decide which pension fund they should invest in. The problem is further compounded by the fact that the NPS investments are spread across 2-3 fund classes.

So, we studied the blended returns of four different combinations of the equity, corporate debt and gilt funds. Ultrasafe investors are assumed to have put 60% in gilt funds, 40% in corporate bond funds and nothing in equity funds. A conservative investor would put 20% in stocks, 30% in corporate bonds and 50% in gilts. A balanced allocation would put 33.3% in each class of funds, while an aggressive investor would invest the maximum 50% in the equity fund, 30% in corporate bonds and 20% in gilts.

Ultra safe investors
Bond funds of the NPS have generated over 12% returns in the past one year, but the performance has not been good in recent months. The average G class gilt fund of the NPS has given 0.55% returns in the past six months. The change in the RBI stance on interest rates pushed up bond yields significantly in February, which led to a sharp decline in bond fund NAVs.

Before they hit a speed bump, gilt and corporate bond funds had been on a roll. Rate cuts in 2015-16 were followed by demonetisation, which boosted the returns of gilt and corporate bond funds. Risk-averse investors who stayed away from equity funds and put their corpus in gilt and corporate bond funds have earned rich rewards.

Unsurprisingly, the LIC Pension Fund is the best performing pension fund for this allocation. “Team LIC has rich experience in the bond market and is perhaps the best suited to handle bond funds,” says a financial planner.

The gilt funds of NPS usually invest in long-term bonds and are therefore very sensitive to interest rate changes. Going forward, the returns from gilt and corporate bond funds will be muted compared to the high returns in the past.

Conservative investors
In the long term, a 100% debt allocation is unlikely to beat inflation. This is why financial planners advise that at least some portion of the retirement corpus should be deployed in equities. Conservative investors in the NPS, who put 20% in equity funds and the rest in debt funds, have also earned good returns. Though the short-term performance has been pulled down by the debt portion, the medium- and long-term performances are quite attractive.

Here too, LIC Pension Fund is the best performer because 80% of the corpus is in debt. It has generated SIP returns of 10.25% in the past 3 years. NPS funds for government employees also follow a conservative allocation, with a 15% cap on equity exposure.

These funds have also done fairly well, beating the 100% debt-based EPF by almost 200-225 basis points in the past five years. Incidentally, the LIC Pension Fund for Central Government employees is the best performer in that category. Debt-oriented hybrid mutual funds, also known as monthly income plans, have given similar returns.

However, this performance may not be sustained in future. The equity markets could correct and the debt investments might also give muted returns.

Balanced investors
Balanced investors who spread their investments equally across all three fund classes have done better than the ultra-safe and conservative investors. The twin rallies in bonds and equities have helped balanced portfolios churn out impressive returns. Though debt funds slipped in the short term, the spectacular performance of equity funds pulled up the overall returns. Reliance Capital Pension Fund is the best performer in the past six months with 4.03% returns, but it is Kotak Pension Fund that has delivered the most impressive numbers over the long term. Its three-year SIP returns are 10.39% while five-year SIP returns are 11.22%. For investors above 40, the balanced allocation closely mirrors the Moderate Lifecycle Fund. This fund puts 50% of the corpus in equities and reduces the equity exposure by 2% every year after the investor turns 35. By the age of 43, the allocation to equities is down to 34%. However, some financial planners argue that since retirement is still 15-16 years away, a 42-43-year olds should not reduce the equity exposure to 34-35%. But it is prudent to start reducing the risk in the portfolio as one grows older.

Aggressive investors
Aggressive investors, who put the maximum 50% in equity funds and the rest in gilt and corporate bond funds have earned the highest returns, with stock markets touching their all-time highs. Kotak Pension Fund gave 16.3% returns in the past year. The best performing UTI Retirement Solutions has given SIP returns of 11.78% in five years. Though equity exposure has been capped at 50%, young investors can put in up to 75% of the corpus in equities if they opt for the Aggressive Lifecycle Fund. It was introduced late last year, (along with a Conservative Lifecycle Fund that put only 25% in equities), and investors who opted for it earned an average 10.8% in the past 6 months.

But the equity allocation of the Aggressive Lifecycle Fund starts reducing by 4% after the investor turns 35. The reduction slows down to 3% a year after he turns 45. Even so, by the late 40s, his allocation to equities is not very different from the Moderate Lifecycle Fund. Critics say investors should be allowed to invest more in equities if they want.

Source: https://goo.gl/oUp9FP

ATM :: Useful Tips to Transfer a Property


Posted On: Apr 30, 2012 | CommonFloor.com

A property transfer to your family member or to a near and dear one is not as easy as you might think. If you own a property in India and wish to transfer it to another person’s name you might as well think that your family member belongs to a similar group. Indeed, it is always safe that you seek legal help when it comes to property transfer. There are various circumstances in which one can transfer property to another person’s name. In case of death, selling your property or gifting it can be are options that can be considered. Properties can vary from a unit to apartments, houses, flats, holiday houses, vacant blocks of land, rental properties and hobby farms.

Once you have decided to transfer the property to another person, you need to know the basic and important formalities required in the process of a property transfer.

Know the valuation or the market price: It is very important that you get the precise valuation of your property before transferring it. Doing this will give you a clear idea about the fluctuations of the capital gains tax event (CGT event).

Hire an attorney: It is always better that you hire an attorney if you’re either gifting or selling the property. An attorney will help you fill out and file the quit claim deed precisely. It is also possible that you can fill out the forms by yourself but you might get a little confused and might require a lot of time. You can also acquire a quit claim deed online as well.

Quit claim deed: This deed is signed in order to transfer any ownership interest of the owner without making any promises regarding the properties interest. They are basically used in order to clear up the title problems or to transfer the property amongst couples after separation or any informal decisions. It is very important to write the precise and complete names of the transferor and the transferee.

Get a warranty deed: It is very important that you get a warranty deed in order to transfer the property to another person’s name. It is also known as the “Grant Deed”.This transfers ownership of the property and promises transfer of property of the owner to the transferee.

Legal description of the property: Mentioning a precise legal description of your property at the time of transferring is very important. Details like your address, landmark, few specifications and dimensions are the details which are needed to be mentioned.

Exclusions: The idea of exclusions is to clearly mention that while transferring the property between people, both the receiving and the giving parties are exempted from being taxed. This can be applied in case of a parent, child, in-laws, step children, and so on.

Gift deed/Will deed: Transferring a property can either be as a gift or as per mentioned in a will. If a person is transferring the property in order to escape the liabilities, he/she will not be exempted from paying the liabilities. The transfer of property as a gift deed will require a stamp duty, whose value and purpose rate will be fixed by the government. It also has to be registered. In case of a Will deed, the stamp duty is implied and the Will will take effect only after the death of the person. There is an option of the Will deed being either registered or not registered.

Country name: It is mandatory that you write the name of the country where the property is situated. The form has to be filled with precise information.

Purchase price:In case you’re selling the property, you will have to enter the purchase price. If you’re gifting the property, you will have to enter the nominal monetary amount in the form.

Notarizing the deed: While you’re notarizing or transferring your property, it is important that you find a suitable notary public in order to notarize the deed.

Points to be remembered:

  • Other than a relationship breakdown, the stamp duty is payable for other reasons while transferring.
  • The market valuation of the property has to be given to the Office of fair trading in order to calculate the stamp duty.
  • If the property has a mortgage amount, you will have to discuss this issue with the person who is receiving the property.
  • There are a certain amount of costs which will be involved while transferring property.

Source: https://goo.gl/I62dXE

ATM :: Invest in NPS but only up to the exclusive tax deduction limit available

HARSH ROONGTA | Tue, 13 Sep 2016-06:35am | dna
Despite all this, the detractors of NPS are many and the reasons are fairly significant.


On paper, National Pension System(NPS) has everything going for it. It is an extremely low-cost retirement mutual fund with fund management fees at very low levels. It also allows equity participation up to a maximum of 50% and requires the balance money to be invested in government and debt securities. This provides a healthy mix of high return equity with safe debt instruments. NPS also effectively locks in the investors’ money till they reach the age of retirement. This ensures that the investor does not take any short decision for this investment. It also allows the fund manager to invest with a longer-term horizon in mind, thus allowing better returns. The star advantage, of course, is the exclusive tax deduction of Rs 50,000 for investing in NPS which is over and above the Rs 1.50 lakh limit available under section 80C for other investments and expenses. For salaried employees, the employer can contribute up to 10% of the basic pay into the NPS without payment of tax. What should clinch the argument is the fact that the average return over the past 5 years is a creditable 12% per annum even if you had chosen in the worst-performing equity and debt funds available in the NPS.

Despite all this, the detractors of NPS are many and the reasons are fairly significant. First is the requirement for compulsory investment in buying an immediate pension plan from a life insurance company with at least 40% of the accumulated fund. The immediate pension plans available from life insurance companies are very limited and offer very poor returns around 7% p.a., which is also taxable. Second is the fact that out of the balance 60% (left after investing in compulsory pension plan) only 40% of the accumulated fund can be withdrawn tax free. The balance 20%, if withdrawn, will be taxable, thus reducing the return. Questions have also been raised about the very low fees that fund managers get which may affect the performance of the fund in the long run.

The argument for or against NPS thus rallies around whether the exclusive tax benefit provided initially outweighs the disadvantages of NPS at maturity. Proponents of NPS (and I am one of them) argue that the fears of taxation on the pension income are overstated as the income is spread over many years and you are likely to have low income in your retirement years leading to low or nil taxation rates. Also, the immediate annuity market cannot remain underdeveloped forever and should start offering competitive returns by the time you retire in a decade or more. Also, given the government’s commitment to promoting the NPS, the tax disadvantages of NPS are likely to reduce or disappear over time. The biggest advantage for unsophisticated investors is that the initial tax benefit will ensure that they diligently invest year after year which they may not otherwise do in a regular investment product.

Of course, I think both sides agree that investing in NPS over and above the exclusive tax benefit available for it makes no sense whatsoever currently. So invest in NPS, but only to the extent of the exclusive tax benefit available.

The writer is a chartered accountant and Sebi-registered investment adviser

Source : https://goo.gl/hd8xbA

ATM :: How Sunny Leone manages her money

Vivina Vishwanathan | First Published: Mon, Jul 11 2016. 04 03 AM IST | Live MInt
Actor Sunny Leone’s current business interests include perfumes and online gaming. Personal investments, too, are made with a long-term intent


Sunny Leone is not an ordinary Bollywood star. The 35-year-old has been the most searched person on the Internet in India for four years in a row. The adult movie star-turned-actress was always fascinated with business and was a control freak when it came to finances. But that was before she met husband, Daniel Weber.

“I was 8 or 10 years old when I used to go to the street with my brother and a neighbour in Canada, and shovel snow in the driveways and earn a dollar a piece. But the snow was two-feet high and we thought we should charge more because it was double the work,” says Leone, who was born in Canada and lived there as a child. In fact, as a child, she routinely put up lemonade stands during summers and shovelled snow in the winters to earn money. “I was the girl who sold things for my basketball team and soccer team. That was before I even went to high school.”

Her interest in business continued in high school. “When I went to high school in California, I joined a club called Future Business Leaders of America. That is when I started learning a lot of things about marketing, and supply and demand. I took different classes around business and economics. We would go to young entrepreneurial conferences in that area and that’s kind of where everything started.”

Even at a young age, Leone wanted to start her own venture. “When I became an adult, I realised that (adult content) was a business. But more than that, I wanted to own a website and run my own company.” She used to handle everything. “If I have to be in this industry, I want to make all the money—every dollar. After all, it is my body, my image and my brand.”

So, she learnt to manage her website, learning HTML, video editing, photography, and how to build thumb gallery posts (TGP). “I would do everything from start to finish. That was when I learnt about website traffic. In a digital world, traffic is the best thing you can have. I learnt where to send this traffic and how to capitalise all of it.”

Leone says a business should be grown slowly and steadily. “Believe me, it takes at least a year to three years for a business to turn profitable. I don’t believe in any business that is fast paced. If it is moving very fast, it doesn’t seem right to me. I like the idea of growing slowly and steadily and making the roots of the company strong.”

Move to India

Moving to India was a calculated risk for Leone. When she got an offer to participate in the prime time reality show Bigg Boss in India, Leone initially declined. “I thought it was absolutely insane because I’d got so many hate mails from the Indian community. Because I had got so much hatred, I said I don’t want to go through it again.” But then her husband, Weber, went to her with a PowerPoint presentation and armed with statistics. “We had the viewership and the reach details. We started doing further research. I think at that time Bigg Boss was watched by 25 million people in 10 different countries or something. It was huge. By the time I finished researching, we both came to the conclusion that if we didn’t take this chance, it might be one of the biggest regrets we would ever have.”

She was taking a chance, and she was scared. “There was a lot of negativity and backlash for Viacom, Bigg Boss, and Colors for bringing me here because it was the first time someone from that (adult content) industry was coming to mainstream television. Meanwhile, I thought if I work for a couple of weeks, make money and then come home, I could put a down payment on a house and go back to living in my bubble. I didn’t think anything was going to come from it.”

But when she started working in Bigg Boss, she realised she was breaking into a market that she has been trying to enter for years. “Our research showed that majority of the traffic that came to my website or different social media sites was from India. We were not capitalising the traffic. Nobody made it to the ‘join’ page or purchased anything. Bigg Boss was my chance to break into a market that I had never been able to tap into.” She says people knew her and were at her website but were not spending. “There is definitely a disconnect that happens when you are someone from abroad. Living here is being a part of the Indian culture and there is a connect that happens. Hence, moving to India was very calculated.”

Taking plans further

After Bigg Boss, Leone bagged some Bollywood movies and debuted with Jism-2. She has also done a song for Shah Rukh Khan-starrer Raees, which is expected to hit the screens next year.

While Leone may be getting more and more films now, she knows that her role in the entertainment industry will not last forever. “It can end like tomorrow,” she says. Therefore, she is always thinking of branching out. “Once we got a handle of how it works in India, after signing a bunch of movies and doing different brand endorsements, we have tried to think of ways to branch out.” She considers movies as only a small piece of the puzzle. Among her other ventures are TV shows. Apart from movies, she does a show every year. At present, she co-hosts MTV Splitsvilla.

As part of the expansion plan, she has launched a perfume line—The Lust. “It is manufactured by me. Taking the Kardashian model, and some of the other artists out there in the US, the goal is to keep growing. When the movies or something else ends, I know that we have created something here above, beyond, and bigger than us.”

After perfumes, Leone plans to venture into women’s cosmetics. “I plan to create products for women such as nail polish, skin care, lipsticks…. I’m not sure about clothing right now but it is something we keep talking about,” says Leone. “We have invested a lot of time and money in it. I personally would like to invest more money in merchandising and branding because it is something that can continue forever.”

Recently, Leone wrote a collection of short-stories for the mobile-first digital publishing house Juggernaut. Titled Sweet Dreams, the stories, as defined by Juggernaut, are “fictional stories of power… emotions… desires”. “It was a little bit more difficult than I anticipated. It takes a lot of work to be a good writer.” She is also into online gaming with Teen Patti with Sunny Leone.

The next step, says Leone, may be producing movies in India. “But I am in no rush because there is a shift happening in the entertainment industry and if you don’t have great content and dialogues, usually it doesn’t work.”

Leone has stopped working in the adult content industry. Her focus now is on building her brand. “I stopped working in that industry long time ago. But we have a lot of traffic and we don’t know what to do with it. Now we have a reach of around 100 million people. Hence, let’s say, there is a company that wants me to tweet about something or put it on Facebook, I use this traffic to monetise now.” The same strategy works when she wants to raise money for charity. “We also found that the traffic is now monetised because those people are donating or spreading the word. We are able to do so many things now, which we were just not able to do earlier.”

Leone has over 1.5 million followers on Twitter; a reach she uses for promotions and branding. “Every day, we use social media to get across something that we want to say. A brand will call and say we want you to tweet about our brand once, which we do.” But she says she doesn’t like spamming. “For instance, we do movie promotions. There have been some directors who come and say ‘I want you to keep tweeting every 20 minutes the same thing over and over’. I say it is not going to happen because you are not going to get traction with this. It is not going to work. You are not even letting it get absorbed before having me tweet again. We don’t want to block them (the followers) or get them to unfollow.”

Savvy investments

Like her business ventures, in investments, too, Leone has only what she understands. Her investment portfolio has a mix of stocks, mutual funds, real estate, and retirement funds. “In the US, we have invested some of our money in very stable stocks and some mutual funds. We also have some IRAs (Individual Retirement Accounts).” An IRA offers various tax breaks. It’s a basket in which you keep stocks, bonds, mutual funds, and other assets. “We have bought our home there. We have invested a lot of our money in real estate. We do love the idea of getting into real estate a bit more. We are also interested in investment homes. And we obviously save a lot of money.”

When it comes to stocks too, she remains updated. “When this whole Brexit happened, we lost some money, which was not fun. But I do believe that it will steadily go back up and back to normal. This is just a shock to everybody. I didn’t think that this would affect us, but it did.”

The Indian stock market, however, is not part of her portfolio yet. “It is difficult for Overseas Citizens of India and people from outside of India to invest in India. You have to follow the whole process, which is crazy.”

The Indian real estate market, too, is not in her view. “It is really difficult to invest in Indian realty. When there are so many people involved, money just goes away. And then trying to sell the house and transfer the money into our bank account out of India is another huge issue. I think buying stocks and mutual funds is probably little easier with the right people in India, than buying real estate.”

She is not interested in start-ups due to the way their valuations work. “I have been hearing a lot of information about start-ups and how they are getting evaluated. Personally, I think it is a very interesting business model that I don’t think is going to last very long. My husband might think completely opposite. I think it is great if it is a start-up that stays true to what it is, instead of getting evaluated and getting into selling some big dream to somebody else.”

Leone doesn’t look at gold as an investment choice. “I know that there are a lot of families in India that buy gold. I like wearing them—gold, diamond, jewels—rather than looking at them as an investment option.”

Daniel: the financial guru

Before Leone was married, she took care of all her finances. “As far as finances were concerned, I used to put a lot of my money back into my company. But at some point I did have to branch out. You can’t micro manage everything. Before I met Daniel (her husband), I was in control of everything.” Initially she had doubts about doing business with her husband. “When we started doing business together, it was really difficult mentally to bring someone into my inner financial and business circle. But he has a great business mind as well. So when we started discussing all these different things, it was very natural for us to come together and form a company together.” Now she thinks it is the best thing that has ever happened to her. “His business background and mine are totally different. And he just completely streamlined everything and helped me organise things because I was growing faster than I could manage. You need help at that point. You can’t think of doing everything. You will stop growing, since you don’t have the time in a day to do everything.” She says her husband manages everything, ensuring that she and her staff work every day and their money is allocated in the right places in multiple countries. However, financial decisions are always taken after weighing the pros and cons.

Being financially independent

Leone always wanted to be independent. “I wanted to be on my own ever since I was really little. Also my parents would tell me over and over again that you have to be independent. That stuck with me.” Besides financial independence, her parents always tried to tell her to save money. “I grew up in a lower middle-class family, so we didn’t have a lot of money. As I got older, I realised I should save money. She doesn’t have any money regrets. “I am pretty calculated. If I am not 100% convinced that this is going to be financially viable, I won’t take the risk. If I know that it is a risk and if it doesn’t work, I am okay with what is lost too. I think I am realistic when it comes to investments.”

Source : http://goo.gl/u5y8sE

ATM :: How to save Rs 10 crore

Babar Zaidi | TNN | Jun 13, 2016, 06.53 AM IST | Times of India


NEW DELHI: The first time Arjun Amlani used an online calculator to assess his retirement needs, he was shocked. The Mumbai-based finance professional, whose gross income was around Rs 10 lakh a year then, needed more than Rs 8 crore to fund his retirement needs. “The eight-digit number was too scary,” he says.

Figures thrown up by excel sheets and online retirement calculators can be intimidating. Here’s an example: if your current monthly expenses are Rs 60,000, even a conservative inflation rate of 7% will push up that requirement to over Rs 4.6 lakh in 30 years. To sustain those expenses for 20 years in retirement, you need a corpus of Rs 9 crore. To some investors, such enormous figures seem so unattainable that they just stop bothering about retirement. That’s a mistake.Retirement cannot be wished away. The paycheques will stop coming, and your living expenses won’t end but keep rising due to inflation. Worse, critical expenses like healthcare will be growing faster than overall inflation. The sooner you start saving for that phase of life, the more comfortable retirement will be.

The big question is: how can one build a nine-figure nest egg when the monthly surplus is Rs 15,000-20,000? Mutual fund sellers claim that an SIP of Rs 15,000 can grow to Rs 10 crore in 30 years. But this calculation assumes compounded annual returns of 15% for the next 30 years.It’s not advisable to base your retirement plan on such over-optimistic assumptions. Life insurance agents will offer plans that will give you an assured sum on retirement. But the returns they will generate are too low and the amount required will be too high. An endowment policy that gives Rs 10 crore after 30 years will have an annual premium of roughly Rs 12 lakh — or Rs 1 lakh per month.

Increasing the investment
When Amlani used the calculator, his monthly income was around Rs 85,000 and he needed to invest almost 20% of this for his retirement. A year later, his income has gone up and so have expectations. The calculator now says he needs to save over Rs 10 crore in the next 27 years, but Amlani is not worried. If he continues putting money in his PF, PPF and equity funds as planned, it won’t be difficult for him to reach the target.

All Amlani has to do is increase the quantum of investment every year. If a 30-year-old with a monthly salary of Rs 50,000 starts saving 10% (Rs 5,000) for his retirement every month in an option that earns 9% per year, he will accumulate Rs 92 lakh by the time he is 60. But if he raises his investment by 10% every year (in line with assumed increase in income), he would have saved Rs 2.76 crore.

It’s surprising that not many investors follow this simple strategy even though their income rises every year.Sure, the annual increment in salary is nullified to some extent by the increase in cost of living. Yet, even when there is a marked increase in investible surplus, people don’t match investments with the increase in income. The silver lining is that contributions to the Provident Fund are linked to income and automatically increase after every annual increment.

The right investment mix
We looked at three types of investors: risk-averse individuals who stay away from equities, moderate investors who have some exposure to stocks and aggressive investors who are willing to take risks. Each starts with a monthly investment of Rs 15,000 spread across different retirement saving options, and increases the investment amount by 10% every year. Unfortunately for the risk-averse investor, his nest egg is considerably smaller than those of the moderate and aggressive investors.

This is because apart from PF and investments in small savings schemes, he has invested in low-yield life insurance policies and pension plans. Life insurance policies offer assured returns and a tax-free corpus. But the returns are very low–even a long-term plan of 25-30 years will not be able to generate more than 6-7%. Pension plans from life insurance companies are also high-cost instruments. While this shows that equity investments are critical for a long-term goal, the other two haven’t taken too much risk either.

The equity exposure of the moderate investor does not exceed 53% while the aggressive investor has a marginally higher allocation to stocks. The moderate investor comes close to the Rs 10-crore mark, while the aggressive investor manages to reach the nine digit figure.

Investing discipline needed
The big problem, however, is the lack of investing discipline. Though our calculations do not allocate too much to equity, we have assumed regular investments for 30 years. In reality, data from AMFI shows small investors withdraw 47% of investments in equity funds and 54% of investments in non-equity funds within two years. In fact, 27% of equity fund investments are withdrawn within a year. “Small investors just don’t have the patience or the long-term vision required to make money from equity investments,” says a senior fund manager. It’s futile to imagine a nest egg of Rs 10 crore if your investment term is only 1-2 years.

The trajectory of equity investments is never a straight line. It will have ups and down, which is an inherent feature of this asset class. However, in the long-term, these investments will prove more rewarding than fixed income options. Although equity funds have churned out much higher returns in the past 15 years, we have assumed a conservative 12% returns from equity investments.

Source : http://goo.gl/qYLTb0

ATM :: As govt rolls back EPF withdrawal norms, 5 reasons to stay invested

PF withdrawal norms dropped: There could be good reasons to keep your money with the EPFO unless you need it for a specific purpose and you have no alternative sources to meet those expenses.
By: Sarbajeet K Sen | Updated: April 20, 2016 5:25 PM | Indian Express


Employee Provident Fund members may have won the battle against the government’s move to impose restrictions on EPF withdrawal, but should they rush to take out the money if eligible to do so?

There could be good reasons to keep your money with the fund unless you need it for a specific purpose and you have no alternative sources to meet those expenses.

Here are a few reasons why you should consider staying invested in with the Employee’s Provident Fund Organisation (EPFO).

Provides old-age income security: The main purpose of contributions to EPF is to create a corpus for the golden years of the members. The corpus created through compulsory savings should be looked at as a fund that would provide financial security at old age. It should not be withdrawn unless for specified emergency purposes. Besides, there is provision for pension and insurance under EPFO.

High rate of interest: EPFO has set the interest rate for 2015-16 at 8.8 per cent, which makes it one of the most lucrative fixed-income savings instruments. This is even better than Public Provident Fund (PPF) which now gives an annual interest of 8.1 per cent. Hence, financial advisors often suggest voluntary increase in EPF contributions from the employee side beyond the mandatory 12 per cent of basic.

Compounding for more years builds large corpus: With the money being compounded at a healthy interest rate the fund can help generate a corpus at retirement can be substantial. A quick calculation shows that an average monthly contribution of Rs 5000 for 30 years at 8.8 per ent compounded annually will create a corpus of Rs 82.35 lakhs after 30 years. However, if the same it withdrawn after 25 years, you will get around Rs 54 lakhs and over 20 years the corpus will be substantially lower at Rs 32 lakhs.

Provides tax-free returns: EPF enjoys Exempt, Exempt, Exempt (EEE) status and hence it is not taxed throughout its life including contribution, accumulation and withdrawal. If tax-saving is factored in, the 8.8 per cent interest rate works out effectively to nearly 12.5 per cent interest if you are in the 30 per cent tax bracket. However, if you withdraw the corpus before completing five years as member and the amount is over Rs 30,000, you will have to pay tax as per your income slab.

Interest paid even in dormant accounts: The government has recently taken a decision to resume paying interest on ‘dormant’ EPF accounts. Earlier, if your money with EPFO had no contributions for over 36 months it was being categorized as ‘dormant’ and no interest was paid on it. That was a good reason to withdraw the money and invest it to other productive avenues. Not any longer. You can now retain the accumulation and earn healthy interest till retirement.

Source : http://goo.gl/mKmSU7

NTH :: Dormant PF accounts: EPFO may consider interest payment since April 2011

The Central Board of Trustees of EPFO on Tuesday took a decision to pay interest on dormant accounts from April 1, 2016. However, it could not take a decision on making this applicable retrospectively from April 1, 2011 till March 2016.
By: Sarbajeet K Sen | New Delhi | March 30, 2016 4:33 PM | Financial Express


The Central Board of Trustees of EPFO on Tuesday took a decision to pay interest on dormant accounts from April 1, 2016. However, it could not take a decision on making this applicable retrospectively from April 1, 2011 till March 2016.

After its decision to pay interest on dormant accounts from April 1, 2016, the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO) is likely to consider payment of interest on dormant accounts from April 1, 2011 to March 31, 2016.

“The trade unions had demanded payment of interest on dormant accounts from April 1, 2011 itself. However, the government has deferred a decision on this and has applicable from April 1, 2016 onwards. We will take up the issue in the next meeting of the Central Board of Trustee (CBT),” D L Sachdeva, CBT Member representing All India Trade Union Congress (AITUC) told FeMoney.

The CBT on Monday took a decision to pay interest on dormant accounts from April 1, 2016. However, it could not take a decision on making this applicable retrospectively from April 1, 2011 till March 2016.

The UPA government had announced that no interest will be paid on dormant accounts with effect from April 1, 2011. Dormant accounts are those where no money has been credited for a period of 36 months.

Sachdeva said with nearly Rs 32,000 crore lying in 9 crore dormant accounts, a rough calculation of 8.5 per cent annual rate of interest, the unpaid interest since April 2011 works out to Rs 12,500 crore. It would be substantially larger if compounded annually. “All union representatives in CBT were unanimous that the interest should be credited in these accounts,” Sachdeva said. He said that they have pressed that these issues should be discussed in the finance and investment committee of the CBT after which it should be placed before the board.

Former, Central Provident Fund Commissioner (CPFC), A Vishwanathan, agreed that the government should pay interest on dormant accounts since April 1, 2011. “The original decision itself is questionable. Since the money is held in trust it is not good to hold back interest for the interim period. This is more so because EPF contribution is made by the subscriber to build a corpus which may be required at retirement or when one does not have a job or is unable to work,” Vishwanathan said.

He pointed out that EPFO was making gains on the investment and it was wrong not to reward subscribers. “EPFO is making gains on investment. It is morally dishonest not to pay the subscribers,” Vishwanathan, who headed EPFO at one time, said.

Source : http://goo.gl/Op0SLi

NTH :: Budget 2016: PPF stays on exemption list, only EPF interest to attract tax

Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries.
By: PTI | New Delhi | Updated: Mar 1, 2016, 14:11 | Indian Express


Seeking to dispel fears of the salaried class, the government today said PPF will not be taxed on withdrawal and only the interest that accrues on contributions to employee provident fund made after April 1 will be taxed while principal will continue to be tax exempt.

In an interview to PTI, Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries.

The proposal, he said, is to tax the interest accrued on PF contributions made after April 1, 2016. “The principal amount will not be taxed and will continue to remain tax exempt on withdrawal. What we have said is 40 per cent of the interest accrued on contributions made after April 1 will be tax exempt and its remaining 60 per cent will be taxed.”

Source : http://goo.gl/NPl6WJ

ATM :: Should one invest in mutual fund retirement schemes?

By Narendra Nathan | ET Bureau|Feb 15, 2016, 08.00 AM IST | Economic Times


If you have been thinking about planning your retirement, you now have more options in the form of retirement products from mutual funds. Even though Franklin India Pension Fund (FIPF) and UTI Retirement Benefit Pension Fund (UTI RBPF) have around for decades, the Income Tax Department has only recently allowed more such funds, with Sec 80C benefits, to be introduced. Retirement funds stuck in approval bottleneck. And after Reliance Retirement Fund (RRF), which hit the market in February 2015, now HDFC has launched its Retirement Savings Fund (HDFC RSF). But, are mutual funds’ retirement products better when compared with the existing products?

Let’s take a look at the newest retirement fund, HDFC RSF. This fund’s equity plan, which comes with a five-year lock-in period, is similar to an ELSS fund. “Since ELSS, with a lower lock-in period of three years, is available, why go for a scheme with a higher lock-in period and also a 1% exit load, if redeemed before the age of 60,” asks Manoj Nagpal, CEO, Outlook Asia Capital. Such products are also costlier because of their small size—small schemes charge a higher expense ratio. Except for UTI RBP, other schemes have much smaller assets under management (AUM). FIPF’s AUM, for instance, is just Rs 339 crore. The expense ratio of these products will be higher than the national pension scheme (NPS) but cheaper than insurance products.

The main advantage of mutual funds’ retirement products is that you don’t have to buy an annuity, as is the case with the NPS or pension plans from insurance companies. Instead, you can opt for a systematic withdrawal plan to meet your regular cash flow needs. Since a part of the withdrawal is your principal, it will be more tax-efficient as well.

Also, while the NPS restricts your equity exposure to 50%, with mutual fund products such as the HDFC RSF, you can take a 100% equity exposure. However, these products do not come with the additional Rs 50,000 in deduction, available to NPS. Mutual funds have asked for the extra tax benefit to be extended to their products, but whether or not this happens, will be known only when the Budget is presented on 29 February.

Mutual funds’ pension products also offer greater liquidity, compared with the NPS or products from insurance companies. You can withdraw your accumulated corpus after the lock-in period— 3-5 years—is over. You may have to, however, pay a small exit load, if you want to withdraw your corpus but have not reached the retirement age—58 or 60, depending on the product. Calculating the lock-in period also varies across funds. For instance, in the case of HDFC RSF, the lock-in for each instalment is calculated from the date of investment. So, the money you invest at the age of 59 can be withdrawn only at the age of 64.

Should you buy?
Experts feel these retirement products do not meet the requirements of the millennials. “The young generation wants to retire early, so pension funds should align with the aspiration of this generation,” says Nagpal. Also, the one-cut-fits-all strategy is not the ideal one, as each individual’s needs are different. “Instead of going for a pension plan from a mutual fund, investors should sit with their advisor and design a pension plan according to their needs,” advises Arun Gopalan, VP, Research, Systematix Shares & Stock.

Should one invest in mutual fund retirement schemes?

Source : http://goo.gl/NpEorc

NTH :: Here’s how your provident fund may earn higher interest rate this fiscal

Interest rates of provident fund might increase to 8.95% from 8.75% earlier
DNA WEB TEAM | Fri, 22 Jan 2016-09:47am , Mumbai , dna web desk


The interest rates of provident fund might increase to 8.95% from 8.75% earlier. The Employees Provident Fund Organisation’s (EPFO) finance panel has recommended the increase in interest rates on statutory savings of over 5 crore subscribers to 8.95% in the current fiscal, according to a leading news agency.

The central board of trustees have endorsed the proposal and is yet to get the finance ministry nod. If the proposal is approved then it will be the highest return since 2011 when the interest rates were 9.5% and the highest ever real interest rate, said the report.

The 8.95% interest rate will translate into returns of nearly 12% for the highest slab as withdrawals and interest earnings do not attract tax at the time of withdrawal.

The government and the Reserve Bank of India (RBI) are looking at reducing deposit rates in order for banks to cut lending rates and push investment. The move to increase the interest rates on EPF deposits may result in a diversion of bank discounts or other small saving schemes.

The finance ministry is expected to lower the interest rates on many small savings schemes by up to 50 basis points.

The EPFO’s, which is a basic investment for many employees, increase in interest rates might face some resistance from the finance ministry. However, it might go through as the middle class depends on it for savings.

Source: http://goo.gl/IIbZf7

NTH :: EPFO may raise interest rate on PF from 8.75% for FY16

PTI | Dec 8, 2015 19:24 IST | FirstPost


New Delhi: Retirement fund body EPFO is likely to increase the interest rate on PF deposits for 2015-16, from 8.75 percent fixed for the last two financial years, during its trustees’ meet on Wednesday.

“Though the proposal for fixing rate of interest on PF deposits is not listed on agenda, the EPFO’s apex decision making body the Central Board of Trustee (CBT) can announce rate in its meeting scheduled tomorrow,” according to a source.

Maintaining same EPFO interest rate. Reuters Maintaining same EPFO interest rate. Reuters

The source further said the meeting is called mainly to discuss the restructuring of Employees’ Provident Fund Organisation (EPFO), but since the EPFO has worked out income projections for the current fiscal, the rate of interest can be fixed in tomorrow’s meeting.

The income projections for the current fiscal suggest that the body can pay rate of interest which is slightly higher than 8.75 provided in 2013-14 and 2014-15.

The finance ministry, however, wants EPFO to retain the existing interest rate of 8.75 per cent for FY 2015-16.

During a recent meeting of top officials from the finance and labour ministries, the former urged the latter to retain the interest rate at 8.75 per cent for the current fiscal as well in view of the government’s intention to reduce rate of returns on small saving schemes and PPF, said the source.

However, fixing the interest rate solely depends on the EPFO’s apex decision making body CBT, headed by the labour minister, as the body provides rate of return from its own income.

Source : http://goo.gl/gDMJwH

ATM :: Are Indians retiring poor?

Rajeshwari Adappa | Tuesday, 24 November 2015 – 6:50am IST | Agency: dna | From the print edition
Defensive investment strategy of choosing secure and safe investments over riskier ones give lesser returns in the long run. The allocation to FDs and gold is much higher in India when compared to developed countries and the ownership of equities is very low. To get more bang for their buck, investors need to change their investment strategy as a few decades back, there were not many alternatives and inflation was not a known devil


For the same corpus invested in retirement funds, Indians make lesser money than their western counterparts.

Yogitaa Dand, financial advisor (associated with DSP BlackRock’s Winvestor initiative for women) says, “Yes, I do agree that Indians are not earning as much as they should from their investments, and hence, they do retire poorer than their foreign counterparts.”

“The reasons are manifold. However, the two distinctive reasons are that till date Indians have always given least priority to their retirement corpus and the greatest priority to the education of their children,” says Yogitaa.

Thus, Indians end up dipping into their nest egg, reducing the corpus considerably.

“Secondly, they have been more conservative in their investments, choosing secure and safe investments over riskier ones, which would otherwise have given them better returns in the long run,” adds Yogitaa.

A leading fund manager blames the “limiting thought process” for the comparatively poorer returns on investments. Indians use a ‘defensive’ investment strategy that lays too much stress on the ‘safety’ aspect.

“While we Indians have been very smart savers, unfortunately, we have not been the best of investors with our focus being on secure and assured return vehicles, eventually giving us lower returns,” says Yogitaa.

According to Vaibhav Agrawal, VP & head of research, Angel Broking, the reason for the lower returns on investments is that “the allocation to fixed deposits and gold is much higher in India when compared to developed countries. Also, the ownership of equities is very low in India.”

“In the US, the amount invested in equity mutual funds is $8.3 trillion (approx. Rs 550 lakh crore) and the amount in bank deposits is $10.4 trillion (approx. Rs 690 lakh crore). In India, the amount invested in equity mutual funds is Rs 3.8 lakh crore while the amount invested in bank deposits is Rs 89 lakh crore,” points out Agrawal.

Over a long term period, it has been seen that equity investments have given higher returns than bank FDs. “The compounded return from the top 50 schemes of equity MFs is in the region of 14.5% while the post-tax return on FDs is 6.5%,” says Agrawal. Even if one were to invest in the Nifty stocks, the returns would be in the region of 12% without dividend, and with dividend, the returns would be 13.5%.

Certified financial planner (CFP) Gaurav Mashruwala explains the reason for the bias towards FDs and other ‘safe’ investments. “Indians have seen very high interest rates in the past. The PPF fetched a return of 12% while bank FDs earned about 15-16% and company deposits earned even more at 21-22%,” he says.

“We also need to understand that a few decades back, we did not have many alternatives and choices to investments. Also, inflation was not a known devil,” adds Yogitaa.

Another reason for the ‘safe and defensive’ strategy seems to be the lack of a social security system in India. “We can look at NPS as an alternative to the social security system. However, it cannot be a complete substitute to the same,” points out Yogitaa.

But the volatility and unpredictability of the stock markets is the main roadblock in the case of equity investments. “Equity investments need a different mindset, much like that of a businessman,” points out Mashruwala. Not all investors are comfortable with the rollercoaster-like ups and downs of the stock markets.

The good news is that the scenario is changing. “People have started investing more in equities. The psychology of the investor and the regulator too is changing. Even the provident fund money is now being invested in equities,” adds Mashruwala.

If Indians want to get more bang for their buck, they need to change their investment strategy. “A person with a low risk investment portfolio can earn anywhere between 5-8% while a person with medium risk investment portfolio would earn approximately 8-10%. A person with a high risk investment portfolio would earn anywhere between 12-18% on a CAGR basis over a period of time,” explains Yogitaa. After all, risks and rewards are but two sides of the same coin.

Incidentally, Mashruwala is not too concerned about the western counterpart getting higher returns. “Remember, in all probability, the western counterpart also has more debt compared to the average Indian. It is highly likely that the Indian probably owns the house unlike his western counterpart,” says Mashruwala.

Source : http://goo.gl/hHcZR3

ATM :: How to do a financial clean up in 7 easy steps

Financial cleaning is one thing that has to be done proactively. Check out these seven tips to clean up your finances and become a pro at managing money:
By: CreditVidya | New Delhi | July 20, 2015 2:21 pm | The Financial Express


A routine weekly cleanup at home involves clearing the accumulated and scrubbing all surfaces squeaky clean! The mantra that most people swear by is, ‘if it looks messy, clean it up’. Unfortunately, this approach is not extended to financial cleaning by most. An approach to cleaning, in general, is reactive. But financial cleaning is one thing that has to be done proactively. Check out these seven tips to clean up your finances and become a pro at managing money:

#1. Get a financial planner!
Yes. You need an exclusive planner to organize your finances. Financial planning definitely cannot share space with grocery lists and birthday reminders in your day to day planner. Your hard earned money deserves special attention. Use this planner specifically for chalking out the details of your finances. Premium payments, outgoing bills, EMI dates, FD records, and more can be tracked by making notes. Organize well and set up a process to track dates and documents. Free you mind space by jotting it all down in the planner.

#2. Clear your debts!
List down all the debts and then calculate the interest you are currently paying on each one. Also, evaluate how long you may have to continue to do so. This can be an eye opening activity! You shall see that few debts are turning out far too expensive. Figure out if you can clear any of these in the near future and draw up an action plan. Re organizing your debt can be a game changer! Pay off those debts and dodge the money black hole called interest payment.

#3 The magical tool – Budget!
If you don’t have a budget planned yet then stop everything and do it now! Budgeting helps limit your expenses. It’s a good idea to have monthly budgets and a review session every quarter. During reviews, check if the budget is helping you save and is in sync with your short and long term financial plans. Riding on a good budget is essential to reach your financial goals.

#4 Is you retirement planning on autopilot?
If you answer is “yes”, congratulations! Because at least you have a retirement plan in place! In case you haven’t planned it yet, this is your red flag. Retirement planning is crucial because that’s when you will be reaping the benefits of all the years of hard work. Putting your retirement plan on autopilot is a good way of believing that you are on the right track. Well, hold on! Investments which are a part of the retirement planning need to be re visited and re-evaluated periodically. How else will you know if the funds are going to be sufficient to lead a comfortable life if not for a dream life? This is a long term plan and definitely calls for good planning and smart thinking.

#5 Investing time can double your money!
To invest smart and invest better one needs to be aware of the various options available. Hence, invest your time in educating yourself. Speak to experts, subscribe to good financial magazines, follow blogs and sign up for updates on finance websites. Knowledge about financial products can help you choose a better product while being aware of the risk involved. That way you will also feel more confident about your finances. As we know, knowledge is power. Investing time in gaining knowledge will definitely fetch rich dividends.

#6 Open new doors!
It’s easy to get into a rut while facing the daily grind. But do not let this block your thought process for coming up with new and creative ways to make more money! Think about what you are passionate about and find ways to monetize it. Work on your hobbies and take up classes to learn something new. In today’s world, where the work environment is so dynamic it important to have a plan B ready. And you never know, you may be one of the lucky few whose business is to do what they love and do it to the best of their ability. So have an open mind and develop new revenue streams.

#7. That important number!
Obviously we are referring to the CIBIL score!Regularly checking this score should top your list. However, this activity easily gets ignored unless we need to submit the score for evaluation. At that time it’s too late to take any corrective action if the score is not up to the mark. Checking your CIBIL score regularly gives you a fair idea about how institutions are going to perceive your financial health. In case, you have to apply for a loan in the near future, problems which may arise due to the CIBIL score can be resolved in advance. An action plan to improve the score can be drawn up and implemented if we track the score regularly.

Make regular financial clean ups your obsession and we promise you a heavier wallet and lighter mind. Delay no further and start today itself. After all financial management is all about smart planning and organizing. The points mentioned above will definitely help you in that. Good luck!

Source : http://goo.gl/ixxAyK

NTH :: Provident Fund Body to Invest in Equity and Related Instruments

Press Trust of India | Updated On: May 06, 2015 18:26 (IST) | NDTV Profit


New Delhi: Government has notified a new investment pattern for Employees’ Provident Fund Organisation (EPFO) providing for investment in equity and related instruments, which would entail an investment of Rs 5,000 crore in the equity market annually.

The Central Board of Trustees of the EPF, at a meeting on March 31, deliberated the new pattern of investment notified by Finance Ministry and recommended it for the EPFO, Labour and Employment Minister Bandaru Dattatreya said during Question Hour in Rajya Sabha.

Under the new provision, there is a provision to invest in equity and related instruments, a minimum 5 per cent and maximum 15 per cent of all incremental accretions belonging to the fund, he said while replying to a question by K P Ramalingam (DMK).

“The Central Board of Trustees of EPF, which has, amongst its member representatives from trade unions, employers’ and government representatives, in the above meeting, examined the issue of investment in Exchanged Trade Finds (ETFs) in detail and after considering the various aspects, recommended the proposal to invest in equity,” the minister said.

He said this would entail an expected investment of Rs 5,000 crore annually in the equity market.

Responding to members’ questions, the minister also assured the House that the priority was to safeguard the hard-earned money of the workers.

Source : http://goo.gl/nXLuPc

ATM :: Five financial planning lessons from Sachin Tendulkar

By Nitin Vyakaranam | Apr 24, 2015, 01.05PM IST | Economic Times


If there is one thing that unites India, irrespective of state, language, religion, caste, color and creed, it has to be Sachin Ramesh Tendulkar. The name Sachin has reverberated in our ears and souls for more than 24 years and it has mysticism when we hear it even today, 2 long years after the great man hung up his playing boots. We feel he would come out to bat every time an Indian wicket falls and resurrect the innings like only he can, how he has always done.

If we closely look at his career and personality how he went about becoming himself, we would be amazed to note some stand-out points that teach us invaluable lessons in personal finance. Let us take a look at 5 fundamental financial planning lessons that we can learn from Sachin:

1. Starting Early Helps:

Sachin started playing when he could barely hold a bat. He played for the country when his classmates were yet to write their 10th standard exams. If we look at the length of his tenure at the top level of cricket, it can be attributed to the early beginning he received. It would be difficult to imagine any other contemporary cricketer to last 24 years.

Similarly, when it comes to financial planning, we keep hearing this all the time, to start saving early. Let us take an example of a 25-year-old professional who starts to invest Rs 4000 per month and he would continue investing the same amount till he is 60 years old, till his retirement. If we consider the rate of return as 10%, can you imagine what kind of corpus he would be left with when he retires? It is a whopping Rs 1.53 crore. Behaviorally, we postpone investing thinking that we would start to invest when we start earning more. Consider the same professional starts investing Rs 8000 per month when he is 35-year old and keeps investing till he retires at the age of 60 years. Now can you imagine what kind of corpus he would have earned? Even though he was saving double the amount, his corpus is only Rs 1.07 crore. This clearly illustrates the power of compounding.

2. Unflinching Focus on the Goal:

One thing that separated Sachin from other cricketers is his focus. He never had time to stare back at the fast bowler who beat him, or the unlucky few who tried in vain to sledge him, only to realize that he is just not cut out for that treatment. He would just look down, walk down a few paces, tap the pitch and take guard again, this time with double the concentration. Right from his childhood, he wanted to play for India and win matches for it. For him, that goal never faded, never became routine, nor stale even though he had done it a thousand times in all forms of cricket. It shows the measure of the character of Sachin who never flinched even when there were questions raised about his intentions. He stuck to his trade, his skills and let them do the talking.

Similarly, in financial planning it is important to stay focused on our financial goals all the time. There would be times when there would be multiple options in front of us. But it would be always prudent to stay focused and not lose sight of our financial goals. This would ensure that we would definitely reach our financial goals.

3. Discipline Definitely Pays:

If we have to choose one quality among the many he possesses, it would be his discipline. Even at the peak of his career, when he got out to a particular ball or a bowler more than once, you can see him working on his technique, ironing out the flaw that only he saw, because for others, he was flawless. That discipline, that commitment to his career and the cause is the single most important virtue that made him what he is today.

Similarly, in financial planning, it is always recommended to have discipline. There are no short cuts to become wealthy. It is only through discipline that we can accumulate wealth. Instead of expecting miracles when investing, it would be prudent to stick to the basics and be disciplined. For example, if you are doing a monthly investment for one of your goals, never stop it till the goal is achieved.

4. Choose Your Own Time to Quit:

Sachin chose the day he would hang up his playing boots. Only he knew the wear and tear his body was being subjected to in each match and how much more it could take. Also, more importantly, only he knew when he should pack his bags because the Indian cricket was going through a transition. His presence was needed by the youngsters in the dressing room and on the ground. His wisdom was cherished by them like many of them have acknowledged openly. Keeping this in mind, he chose his retirement at the most appropriate time, right after India won the World Cup, 2011.

Similarly, when it comes to financial planning for retirement, we should take into account our responsibilities and our contribution before taking a call on retiring before the age of 60. All aspects of personal finance should be taken into consideration and only then the decision should be taken. We have to remember that it is our decision.

5. Have a Post-Retirement Plan in Place:

Even during his playing days, Sachin followed his dream and being a foodie, opened a chain of fine-dine restaurants. Apart from this, Sachin has also invested in 7 different companies where he holds various percentages of stakes. This supplements his other income that he receives from endorsements. He had started to diversify and plan for his retirement even during his playing days. A rare quality that we need to learn a lot from.

Similarly, it is very important to plan for one’s retirement well in advance and not when we are just a few years away from it. It would be a wise to start planning for retirement at the peak of our career as this is when we can plan the best for our retirement.


“Chase your dreams, because dreams do come true.” Sachin retired from international cricket with these inspiring lines on November 16, 2013, leaving millions of fans in tears. Arguably the best batsman spanning two generations, this man has gone down in the annals of cricketing history not just as the player with the most records to his name, but also as the ambassador of the game, transcending boundaries that define countries, both that play cricket and the ones who don’t. He has inspired a whole generation of cricketers and taught us valuable lessons in financial planning which, if implemented with the same dedication and commitment that Sachin showed throughout his career, would be very beneficial to the common man as well to accumulate wealth.

(The author is Founder and CEO, ArthaYantra, an online financial planning firm)

Source : http://goo.gl/vVhmKX

ATM :: Don’t miss retirement goals for children’s higher education

It could mean having to prolong work life and putting money in risky investment options
Arvind Rao | April 25, 2015 Last Updated at 21:25 IST | Business Standard


It’s a dilemma several middle-aged parents grapple with. Two goals – retirement and saving for children’s higher education – but not enough funds to meet them. Parents would be tempted to compromise on the former to meet the latter. But with medical costs rising exponentially, this can’t be looked at as a viable solution. This could also mean extending their work life or taking greater investment risks closer to retirement.

The dilemma

Here’s a case study that shows how one can strike the right balance. Ajay and Varsha Sharma, aged 50 and 48 respectively, earn Rs 40 lakh annually, which is not enough to fund all of their major goals. They have to repay their existing home loan of about Rs 40 lakh in the next five years. The couple needs Rs 4.5 crore for retirement and Rs 70 lakh in the next 10 years to fund the higher education of their two children.

The family savings work out to about Rs 15 lakh a year. Their employment-linked retirement benefits and 1 BHK property investment is expected to fetch Rs 2.12 crore, or 45 per cent, of their retirement corpus. This leaves them with a gap of Rs 2.48 crore, or about 55 per cent of the total corpus.

To fund the gap, the Sharma’s can invest Rs 10 lakh per annum in a mix of diversified and mid-cap equity funds. Assuming annualised returns of 12 per cent, they should be able to garner Rs 2.48 crore over the next 12 years.

At the current EMI of Rs 54,000, their home loan outstanding at about Rs 40 lakh is projected to close at the end of 10 years. They aspire to accelerate the repayment and close the loan in four years. For this, they will have to accumulate at least Rs 6.50 lakh annually via monthly contributions in recurring deposits. At the end of every year, the accumulated amount should be used to prepay the loan.

The amount of Rs 70 lakh for higher education can be mopped up by investing about Rs 4.5 lakh per annum over the next 10 years in equity-oriented balanced funds, assuming annualised returns of 10 per cent.

With the current family savings, they are looking at a deficit of about Rs 6 lakh per annum, at least for the first five years.

Part-funding children’s education

The couple has decided to make a provision for up to 50 per cent of their children’s higher education budget by extending the period for their accelerated home loan. They can cut the savings rate for the repayment by 50 per cent to Rs 3.25 lakh a year, thereby extending the period for their home loan repayment to about six years. This way, their contribution for the education also comes down to about Rs 2 lakh and savings for all three goals fit within the family savings. The additional family savings at the end of the home loan period could be used to boost retirement savings or for their children’ marriages.

To accumulate the remaining 50 per cent of their education corpus, Sharma’s children can fall back on scholarships. They can also meet the expenses through education loan or loan against fixed deposits:

Education loan: Interest rates on these are 11-12.5 per cent, with tax benefits available under section 80E. A good retirement corpus, in the form of investments, will enable one of the parents to stand as guarantor/co-applicant for the loan. For loans above Rs 4 lakh, margin money, ranging between 15-20 per cent of the loan, may be required, which can be funded by the parents.

Loan against fixed deposits: Let’s assume the Sharma’s garner a corpus of about Rs 2.5 crore at the time of retirement, which they don’t fully need immediately. They could invest, say, Rs 25 lakh in a bank FD giving 8 per cent per annum and take an overdraft against the same for their children’s education. The rate of interest charged in case of overdraft will be 1-2 per cent higher than the FD interest rate. Even assuming a 10 per cent rate of interest, this option works out to be cheaper than an education loan, but the interest paid will be sans tax benefits under section 80E.

The parents can make the children responsible for repaying the overdraft with their earnings. This will enable them to get their fixed deposit back along with the accumulated interest, which can then be utilised for their retirement. The Sharma’s should avoid loans against property as the EMI would be calculated only for their balance working years, which could mean a bigger outgo per month, plus no tax benefits on the interest paid thereon.

Funding education completely

In case the Sharma’s decide to fund 100 per cent of their children’s education and continue with the six-year home-loan closure plan, they would need to set aside Rs 7.5 lakh per annum and work for two more years to fund their retirement corpus. The Sharma’s may have to invest more aggressively, allocating as much as 75 per cent of their savings in a mix of equity mid- and small-cap and sectoral funds, and the remaining 25 per cent in balanced funds to achieve an 18 per cent growth rate and retire within the next 12 years. This strategy, however, may expose the Sharma’s to a bigger risk of not achieving their target corpus within the available time frame if the equity market do not deliver good results. Considering these risks, it is definitely better for them to part-fund their children’s education needs and not compromise on their retirement goals.
The writer is a chartered accountant

Source : http://goo.gl/lNXl7d

ATM :: Living with parents? Best time to save

Gaurav Mashruwala, TNN | Apr 25, 2015, 07.08AM IST | Times of India


Mohit Khullar (31) lives with his wife Manika (28) in Haryana. He was born and brought up in Punjab. They have a two-year-old daughter, Ashwika. Mohit is an electrical engineer and currently works in the private sector while Manika is a homemaker.

What is the couple saving for?

They want to purchase a house worth Rs 45 lakh two years later as an investment. Rs 50,000 for Ashwika’s education two years from now. A corpus of Rs 15 Lakh after 24 years for Ashwika’s marriage. For their retirement, the couple wants Rs 1 core after 30 years. Apart from these goals, they also wish to own a luxury car worth Rs 10 lakh after four years and go on foreign travel.

The costs will be revised based on inflation.

Where are they today?

Cash flow: The gross annual inflow from all sources is Rs 12.48 lakh against an outflow of Rs 8.05 lakh. The outflow includes routine household expenses, taxes, insurance premium and contribution to provident fund

Net worth: The market value of all assets owned by the couple is Rs 21.31 lakh. Out of this, Rs 3 lakh is for personal consumption in the form of car. The rest are investments. They do not have any liability as of now. The house that they are living in is owned by Mohit’s parents.

Contingency fund: Against the mandatory monthly expenses of Rs 44,000, balance in savings bank and FD together amounts to Rs 2.80 lakh. This is equivalent to 6 months’ reserve.

Health & life insurance: There is a Rs 3 lakh health cover provided by employer for the entire family. Total life insurance of Mohit is Rs 40 lakh, out of which Rs 30-lakh cover is provided by the employer.

Savings & investment: Assets for savings and investment include Rs 2 lakh in savings bank, Rs 80,000 in bank FD, Rs 4 lakh in direct equity, Rs 50,000 in bonds, Rs 86,000 in a provident fund and Rs 15,000 in post-office schemes.

Fiscal analysis:

The couple’s rate of savings is good. The balance in savings bank should be reduced and they must enhance health and life cover. Most assets are investment-oriented because they are living in their parental house.

The way ahead

Contingency fund: Their three months’ mandatory expense reserve should be around Rs 1.30 lakh. Of this, they should keep about Rs 30,000 in form of cash at home and the rest in savings bank account linked to a fixed deposit.

Health & life cover: Mohit and Manika should have a health cover of Rs 5 lakh each and Rs 3 lakh for their daughter. Considering Mohit is single earning member of the family, he should opt for a life cover of Rs 1 crore for now and increase to another Rs 1 crore in next four to five. All these policies should be in form of term plans.

Planning for financial goals

Home buying: Since they do not need a house for staying, they should defer this goal for another decade. This is keeping in mind the fact that there is lack of funds currently and overall portfolio will get skewed in favour of illiquid, immovable, indivisible asset if they purchase a new house now.

Daughter’s education: They should invest Rs 2,500 every month in recurring deposit.

Daughter’s marriage: The should start an SIP of Rs 3,000 in and equity based mutual fund and another Rs 2,000 in a gold fund and increase the amount by 15% every year.

Retirement planning: Invest Rs 7,500 each in three equity mutual fund schemes: Large-cap fund, mid-small cap fund and an international equity fund every month — increase the amount by 10% every year.

Foreign travel: Set aside funds from regular income to fund the trip.

Luxury Car: Defer this goal for a few years.

Planners Eye

Young couples with clear goals, humble expenses, high savings rate and living with parents. For them these are golden wealth creation years. If they stay focused like this for another 5/7 years, they will be on massive wealth creation trajectory. Usually it just requires about a decade of frugality in entire career to create wealth. If that is done during initial period of life it is more beneficial.

Source : http://goo.gl/d3PWVT

ATM :: 5 Finance Pitfalls That Can Cost You Dearly

Creditvidya.com | Updated On: April 11, 2015 14:11 (IST) | NDTV Profit
If you take a quick look at your finances, it may seem like everything is in order. From a distance, your finances may appear to be devoid of any discrepancies: You have a steady income and manage to pay off your mortgage/credit card bills on time and also have that extra bit to splurge on each month. However, a closer look may reveal that you are actually making several money mistakes that may lead to disastrous consequences in the days to come.

Let’s take a look at some of these mistakes:

1) Treating home loan as just another ‘to do’ item

If you have taken a home loan, just paying EMIs on time isn’t enough. You must keep an eye on the interest rate cycles and ensure that you are in touch with your lender on a regular basis. Putting your home loan on a backburner may mean that you are missing out on big monthly savings.

2) Putting away the task of checking credit score

Most of us are guilty of some procrastination, but this is one habit that may cost you dearly. Do not wait to check and improve your Cibil score only when you are planning to apply for a crucial loan. Keeping a tab on your Cibil report from time to time to see that your financial health is in order is a good practice.

3) ‘Retirement savings can wait’

When you are young and have good prospects in your career, you may have a feeling that it is too early for you to start planning your retirement. This is, however, a crucial mistake because you are ignoring the benefits of compounding and also missing out on having the safety net of your own contributions. The later you start saving for your retirement the costlier it gets for you.

4) ‘Medical insurance is a waste’

You may be in perfect health now, but there is no saying when calamity strikes. That is exactly the reason why you need to invest in a good health plan. In case a medical emergency occurs, you may end up wiping off all your savings at one go.

5) No savings for a rainy day

When the going is good, people think that they can put away their savings for a later day. But what if there are unforeseen events in the future like a job loss or a large, unexpected expense? If you do not have a pool of savings to dip into at such times, you may end up making huge expenses on account of emergencies on your credit card. This may inflate your debt burden into an unmanageable size in the future. Making sure that you have put away at least three to six months of your monthly expenses as savings all the time is a healthy practice.

Maintaining a good financial health is as important as physical health. By keeping these five points in mind, you can ensure that your financial health is in order.

Disclaimer: All information in this article has been provided by Creditvidya.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Source : http://goo.gl/SEqSMN

ATM :: PPF Account Offers Loan Facility: 10 Things to Know

NDTV Profit | Updated On: March 30, 2015 17:18 (IST)
Public provident fund (PPF) is among the most popular investment options for long-term savings. Deposits made under PPF also qualify for tax benefits. PPF subscribers can also avail loan benefits against their deposits.

10 Things to Know About the Loan Facility

1) A PPF subscriber can avail loan between the third and sixth financial year of opening the account. For example, if the account was opened in the 2011-12, a subscriber can take a loan between 2014-15 and 2017-18. PPF accounts follow an April-March year cycle.

2) The amount is restricted to 25 per cent of the balance at the end of the second year preceding the year in which the loan is applied for. For example, if the loan was applied in 2015-16, 25 per cent of the account balance at the end of 2013-14 can be taken as loan.

3) However, no loan can be taken from the seventh year of opening the PPF account, as it qualifies for partial withdrawal.

4) The loan (principal) is repayable either in lump sum or in installments within 36 months.

5) The interest portion of the loan has to be repaid by two monthly installments after the principal is paid off.

6) Interest is charged at 2 per cent more than a subscriber receives on the PPF.

7) Meanwhile, the balance amount in the PPF account accumulates interest.

8) If the loan is not repaid within 36 months, interest at 6 per cent more than what subscribers receive on their deposits is charged.

9) The interest on outstanding loan which has not been paid before 36 months or paid partly will be debited from the subscriber’s account at the end of each financial year.

10) A second loan can be taken on full payment of first loan.

Disclaimer: “Investors are advised to make their own assessment before acting on the information.”

Source : http://goo.gl/CW18a2

NTH :: Budget 2015: Government looking at Sebi proposal to introduce MF retirement plans with tax benefits

By Reena Zachariah, ET Bureau | 13 Feb, 2015, 10.12AM IST | Economic Times
MUMBAI: Investors may soon get tax benefits in retirement plans run by mutual funds. The government is considering a proposal by the capital market regulator to introduce retirement savings plan under section 80CCD of the Income Tax Act, which allows investors to claim tax deductions.

The government may announce this in the Budget. The Securities and Exchange Board of India (Sebi) has proposed that a long-term product, such as mutual fund linked retirement plan (MFLRP), with tax incentive can play a significant role in mobilising household savings to the capital markets. Currently, individuals investing in National Pension Scheme (NPS) are eligible to claim income tax deductions under section 80CCD.

Sebi has proposed that the investment under this plan may be categorised under E-E-E status, which stands for exempt, exempt, exempt. The first exempt means that investments are allowed for tax deduction, the second means individuals do not have to pay any tax on the returns earned during the tenure. The third implies the investment is tax-free at the time of withdrawal.

“Mutual fund pension products have a tax treatment different from that of the NPS. One key differentiator is that NPS contributions by employers are exempt up to 10% of salary,” said Gautam Mehra, partner, PricewaterhouseCoopers. “A uniform tax treatment across all pension products similar to that available to the NPS will greatly enhance the reach and penetration of these products and help in garnering long-term capital from a wide section of the working population.”

At present, tax incentives for savings are provided under section 80C of the I-T Act. The section covers products such as employee provident fund (EPF), public provident fund (PPF), NPS, equity unit linked insurance plans ( ULIPs), life insurance premium, and mutual funds’ equity-linked saving schemes (ELSS) among others.

In this crowd, mutual fund products such as ELSS and pension schemes are ranked lowest in the priority of an investor.

Mutual funds are hoping this tax incentive would help them attract funds better. Under the EPF Scheme 1952, there is a mandatory requirement for membership by workers earning up to 6,500 per month. Those earning above this threshold have the option to choose EPF where both employee and employer contribute equally. Most of the contributors to the EPF corpus are voluntary contributors.

Globally, whenever governments have provided tax incentives, it has led to significant increase in the share of long-term retail money in mutual funds, said analysts. The Mutual Fund Linked Retirement Plan is designed to be similar to the 401(k) plan of the US.

“Across most of the world, market-linked retirement planning has been a turning point for high quality retirement savings, which are actually tuned to savers’ needs. Savers get choice, they get flexibility, and they get returns,” said Dhirendra Kumar, CEO, Value Research.

Sebi has proposed that all mutual funds should be allowed to launch pension scheme, which would be eligible for tax benefits under section 80CCD. Currently, three mutual fund pension schemes are eligible for the purpose of claiming deduction under section 80C of the I-T Act,

“Most first-time investors in equity mutual funds tend to come in through the ELSS route. Tax savings have always been a big draw for investors across all categories. In 1999-2000, there was a huge increase in the flow of long-term equity into MF schemes due to Sections 54ea and 54eb, which enabled an investor to save on capital gains,” said Vikaas M Sachdeva, CEO, Edelweiss Asset Management.

The regulator has also proposed that in case of merger of mutual fund schemes, such transaction should be exempted from levy of capital gains tax. At present, when a shareholder gets shares in a merged company, it is not treated as a transfer and not subjected to capital gains tax.

Source: http://goo.gl/Xci352

ATM :: ‘Don’t invest all your money in real estate’

Gaurav Mashruwala, TNN | Jan 10, 2015, 06.35AM IST | Times of India
Mayank Dave, 44, a doctorate in science, works in the private sector. He lives in Bharuch, Gujarat with his wife Jayshree (43) and two sons — Harsh (12) and Shlok (8).

What is the couple saving for?

They want to save Rs 18 lakh and Rs 22 lakh for Harsh and Shlok’s education, respectively — they would require these amounts after six and nine years, respectively. They aim to save a corpus of Rs 50 lakh for their sons’ marriages. For their own retirement, they wish to continue with the same lifestyle and want to create a corpus of Rs 1 crore. All the costs will be revised based on inflation.

Where are they today?

Cash flow: The total annual inflow from all sources is Rs 23.55 lakh, against an annual outflow of Rs 8.70 lakh. The outflow consists of routine household expenses, insurance premium, rent, EMI and tax.

Net worth: The total assets are around Rs.1.39 crore. This includes cash and near-cash assets of approximately Rs 1.91 lakh, invested assets worth Rs 1.04 crore; assets for self-consumption worth Rs 34 lakh and a home loan outstanding of approximately Rs 54 lakh.

Dave has three real estate assets, of which two are investment-oriented and one which will be used for personal consumption is under construction, and hence the family lives in a rented house.

Contingency fund: The balance in savings bank account is Rs 70,000, bank fixed deposits is of Rs 1.11 lakh approximately and Rs 10,000 in cash. This is equivalent to about 4.5 months’ reserve.

Health & life insurance: The family has a health floater policy of Rs 3.50 lakh. Dave has a life cover of Rs 1.27 crore. Out the total sum assured, Rs 27 lakh is in investment-oriented insurance policies and a Rs 1 crore pure term plan.

Savings & investment: The balance in savings bank account is Rs 70,000, Rs 1.11 lakh in bank FDs. Other invested assets include shares worth Rs 11 lakh, equity mutual funds worth Rs 1.5 lakh, bonds worth Rs 1.51 lakh and real estate from investment perspective wroth Rs 90 lakh.

Fiscal analysis

There is a decent fund inflow. A savings rate of 66% is very good. Outstanding liability is 39% of the total assets. The family must enhance health insurance though Dave’s life cover is adequate. However, he should prune investment-oriented life insurance policies. Overall assets allocation is in favour of illiquid real estate. Going ahead, he should ensure to invest more in assets which can be easily liquidated.

The way ahead

Contingency fund: Maintain a contingency reserve of Rs 1.2 lakh out of which Rs 20,000 should be held as cash in hand and the balance in FD linked to a savings bank account. Additional contingency funds should be utlized to pay back loan.

Health & life cover: Family should have health cover of Rs 5 lakh each for the couple and Rs 3 lakh each for sons. Alternatively, the can buy family floater policy of Rs 15 lakh.

Planning for financial goals

Son’s education: Start a SIP of Rs 32,000 for Harsh’s education and Rs 27,000 for Shlok’s. This amount should be invested in a large-cap equity fund and increased by 10% every year.

Son’s marriage: Start two SIP of Rs 15,000 each in equity and gold funds. Alternatively, the can invest in a mutual fund scheme which has both equity and gold as underlying assets.

Retirement planning: Ear mark existing investment in direct equity, EPF and real estate for retirement.

Planner’s Eye

The family has been saving and investing a very good amount. They have build substantial wealth. However, it is recommended they should align it to financial goals and ensure that when the need arises, money is available. For example, real estate is illiquid, immovable and indivisible assets class. Though it does generate great returns, it is not always available to meet our funds requirements, For example, The Daves cannot sell off half of an apartment/flat to fund son’s education.

While it is important to invest in asset classes which generate best possible returns, what is more important is to ensure that investments meet our fund requirement whenever the need arises. Never chase maximum returns, look for optimum returns with convenient liquidity.

Source: http://goo.gl/i0Sg6g

ATM :: Why Reverse Mortgage is a Good Source of Raising Funds

Adhil Shetty- CEO -BankBazaar.com | Source: MoneyControl.com
Mohan and his wife Manjula both retired lived in their own home in Hyderabad city. Over the years while the couple were working and was hoping that their savings would be sufficient for them in their sunlight years. Now with inflation rising steadily in the last few years, the couple is faced with a dilemma of a monthly income for their day to day expenses as their pension was insufficient. Mohan and Manjula approached a banker who suggested them to look at reverse mortgage loan which can bring them monthly income enough to take care of their day to day expenses.  Though initially skeptical, they understood later there is no harm in taking a reverse mortgage and it is a flexible loan for seniors.

Let’s have a look at the intrinsic advantages of reverse mortgage loans.

Working Mechanism of Reverse Mortgage Loan:

A reverse mortgage as the name suggests is the exact opposite of a traditional home loan. In a reverse mortgage scheme, a senior citizen above the age of 60 years living in a self occupied home can receive a regular income from a bank against mortgaging of the home. The borrower can continue to live in the home till his lifetime and continue receiving a periodic monthly payment, just like a salary or pension.

In case of the death of the borrower seeking a reverse mortgage loan, the spouse can continue living in the home and receive the amount. They can close the loan at any tme by settling the amount paid to them with interest, or their heirs can either repay the loan or allow the bank to dispose of the property and recover their dues.

When a home is pledged with the bank, the bank arrive a financial value of the property keeping in mind the market value of the location. Bank then disburses loans up to 40-90% of the market value of the property with a maximum cap of Rs. 1 Crore. The loan amount may be used by the senior citizen borrower for varied purposes like up-gradation or renovation of residential property, medical emergencies etc or even opt for a fixed monthly income. With the bank paying out monthly installment to the borrower the equity or the individual’s interest in the house decreases.

Benefits of Reverse Mortgage Loans: Reverse mortgage loans offer a number of benefits for senior citizens and are slowly getting popular with a number of retirees. Some of the most significant benefits of opting for a reverse mortgage loan include:

• Simple Eligibility Criteria:  Banks allow reverse mortgage loan to house owners above the age of 60 years. In case of a co-applicant the younger borrower cannot be less than 55. Reverse mortgage loan is permissible to only those individuals who are owners of a self-acquired and self-occupied residential property. The borrowers must be residing in the property which is being mortgaged.

• Regular Income for the Elderly: Reverse mortgage loan allows elderly citizen a chance to get a monthly income by mortgaging their house or residential property. This is much beneficial for those who missed the bus while doing efficient planning for their retirement as the loan offers a steady monthly income for the elderly, helping them to live without depending anyone.

• Flexible Payment Options: The borrower has the option of seeking a fixed monthly income, or quarterly or annual lump sum payment for the reverse mortgage loan depending on the financial overview of the borrower.

• No Tax Obligations: Since the money received through a reverse mortgage loan is considered to be a loan and not any income, it is free from any tax liability making it an attractive option for the elderly.

• Easy Prepayment Facility: Reverse mortgage loans can be prepaid along with interest anytime during the loan tenure without any extra charges.

• Easy Loan Settlement Process: The reverse mortgage loan become due either when the tenure period ends of the last surviving borrower dies. In case of end of tenure, the banks allow the borrower to repay the loan and get back the mortgaged property. In case of death of the loan borrowers, the kin or legal heirs of the property are asked to settle the loan. If they are unable to settle the loan or are not interested in settling the loan, the bank recovers its dues by disposing off the property in an open auction. If the money including principal and interest is less than the mortgaged loan due to fall in property prices, the bank absorbs the loss. However if the money received from the sale is higher than principal and interest amount of the loan, the excess funds are distributed to the legal heirs of the borrowers.

Source : http://goo.gl/kMGhqo

ATM :: Will your provident fund be enough?

The PF can be an important pillar in a retirement plan, but one needs to make additional investments to build a corpus big enough to sustain one’s expenses for 20-odd years after retiring.
Preeti Kulkarni, TNN | Nov 24, 2014, 07.10AM IST | Times of India
If you dream about a comfortable retirement but are planning to depend solely on your Provident Fund (PF) to meet your needs, be ready for a shock. The PF can be an important pillar in a retirement plan, but the corpus of the average subscriber is likely to fall woefully short of his requirement.One needs to make additional investments to build a corpus big enough to sustain one’s expenses for 20-odd years after retiring.

To be fair, the Provident Fund’s design makes it the most effective way to save for retirement. You start contributing from the very month you start earning, and since it is a compulsory saving, you can’t avoid it. Besides, your contribution is linked to your income and rises with every increment in your salary. If a person takes up a job at the age of 25, even a modest contribution of Rs 5,000 a month and a matching contribution by his employer can build up a massive corpus of Rs 6.89 crore over 35 years. This calculation assumes that his income (and, therefore, the contribution) will rise by 8% every year and the PF will give 8.5% returns.

While the figure of Rs 6.89 crore may appear huge, it may not be enough. If you need Rs 50,000 a month for living expenses today, a 7% inflation would push up the requirement to roughly Rs 5.34 lakh a month in 35 years. When you are 60, you would need a corpus of Rs.10.52 crore to sustain inflation-adjusted withdrawals for the next 20 years. Assuming a post-tax return of 8.5% and 7% inflation, the Rs 6.89 crore from the PF would be completely wiped out in a little over 12 years. This could mean having no money in your retirement account at the age of 72.

There’s another problem. To make your PF work for you, you must remain invested for the long term. However, a lot of people withdraw their PF when they change jobs, thus losing out on the power of compounding. “In India, the PF is often used for other purposes, particularly when people change jobs. They end up withdrawing this accumulated corpus to buy expensive gadgets or go on a holiday, forgetting that the purpose was retirement planning,” says Arvind Usretay, India Retirement Business Leader, Mercer. A recent global survey by Mercer has ranked India’s retirement system the lowest among the 25 countries surveyed.”What continues to hold India back is the lack of retirement coverage for the informal sector and less than adequate retirement income expected to be generated from contributions made to the Employees’ Provident Fund (EPF) and gratuity benefits,” notes the Mercer study.

Another global study by Towers Watson points out that a significant majority of employees sees their employer retirement plans as the most important source of income in retirement. “Employers must educate their employees on the need for retirement planning and provide them the tools to help them save adequately,” says Anuradha Sriram, director, benefits, Towers Watson, India.

To ensure a comfortable life in retirement, one needs to make additional investments to build a corpus big enough to sustain one’s expenses for nearly 20 years in retirement. Here are a few options you can consider.

Mutual funds

Mutual funds are, perhaps, the best way to supplement your retirement savings.Among these, equity mutual funds have the potential to give very high returns, but also carry high risk. They are best suited to younger investors who can withstand short-term volatility to earn long-term gains. “Equity funds should be the instrument of choice for young investors who have 25-30 years to build a retirement kitty,” says Suresh Sadagopan, founder of Ladder7 Financial Advisories. An additional advantage of investing in equity funds is that the gains are tax-free.

If you are averse to taking risks, consider a balanced fund, where the eq uity exposure is lower. Ultra cautious investors can go for MIPs of mutual funds that invest only 15-20% of their corpus in stocks and put the rest in bonds. However, the returns of MIPs will not be able to match those of equity and balanced funds.


Ulips have earned a bad name because of the rampant mis-selling in the past.However, this much reviled product can be a good option for retirement planning.In recent months, insurance companies have come out with online plans that levy very low charges. The Click2Protect plan from HDFC Life charges an annual fund management fee of 1.35%, which is less than the direct mutual fund charges. The Bajaj Allianz Future Gain plan does not levy premium allocation charges if the annual investment is Rs 2 lakh and above. The Edelweiss Tokio Wealth Accumulation Plan doesn’t have policy administration charges. Some Ulips, such as Aviva i-Growth and ICICI Prudential Elite Life II, don’t have lower charges but compensate long-term investors with ‘loyalty additions’. The best part in a Ulip is that one can shift money from debt to equity, and vice versa, without incurring any tax liability. The corpus is also taxfree on maturity.

Unit-linked pension plans

Unlike Ulips, unit-linked pension plans are not a very good option. Although they work like Ulips during the investment years, the rules at the time of maturity are different. You can withdraw only 33% of the corpus on maturity and the balance must compulsorily be used to buy an annuity . The pension from the annuity is fully taxable as income, so these plans are not tax-efficient. Besides, they have very high charges in the initial years, which eat into the returns of the investor.There is no online unit-linked pension plan on offer.


The New Pension Scheme offers greater flexibility to investors than the unit-linked pension plans from insurance companies. The charges are also very low. The investor can choose from six pension fund managers. He can also switch to another fund manager once in a year. The best part about the NPS is the lifestage fund. Under this, the asset allocation is linked to the age of the investor. The exposure to a volatile class like equity is progressively brought down as the person gets older. “It is a well-planned pension product and facilitates automatic lifecycle-based investment option, making it attractive even for those who may not be financially savvy ,” says Usretay. The drawback of this scheme is that the equity exposure is capped at 50%, and 40% of the corpus must mandatorily be put into an annuity to earn a pension. As mentioned earlier, the pension income is fully taxable.

Traditional insurance policies

They offer tax-free income and insurance cover, but traditional insurance policies are not the best way to save for retirement.The returns are quite low at 6-7%, and the investor has very little flexibility . The PPF, which offers the same tax benefits, may seem like a better alternative. If the annual ceiling of Rs 1.5 lakh in the PPF is a problem, you can contribute more to your PF through the Voluntary Provident Fund.

Apart from making additional investments for retirement, you need to plan for emergencies as well. An unexpected event can derail your financial planning.”Build a contingency fund for financial emergencies and buy adequate life and health insurance,” says Sudipto Roy, managing director, Principal Retirement Advisors. The contingency fund should be big enough to take care of six months’ expenses.

Source : http://goo.gl/pClWsT

ATM :: Retire rich: Supplement your Provident Fund with other high-yielding options

Preeti Kulkarni, ET Bureau Nov 10, 2014, 01.34PM IST | Economic Times
If you dream about a comfortable retirement but are planning to depend solely on your Provident Fund (PF) to meet your needs, be ready for a shock. The PF can be an important pillar in a retirement plan, but the corpus of the average subscriber is likely to fall woefully short of his requirement. One needs to make additional investments to build a corpus big enough to sustain one’s expenses for 20-odd years after retiring.

To be fair, the Provident Fund’s design makes it the most effective way to save for retirement. You start contributing from the very month you start earning, and since it is a compulsory saving, you can’t avoid it. Besides, your contribution is linked to your income and rises with every increment in your salary. If a person takes up a job at the age of 25, even a modest contribution of Rs 5,000 a month and a matching contribution by his employer can build up a massive corpus of Rs 6.89 crore over 35 years. This calculation assumes that his income (and, therefore, the contribution) will rise by 8% every year and the PF will give 8.5% returns.

While the figure of Rs 6.89 crore may appear huge, it may not be enough. If you need Rs 50,000 a month for living expenses today, a 7% inflation would push up the requirement to roughly Rs 5.34 lakh a month in 35 years. When you are 60, you would need a corpus of Rs 10.52 crore to sustain inflation-adjusted withdrawals for the next 20 years (see table). Assuming a post-tax return of 8.5% and 7% inflation, the Rs 6.89 crore from the PF would be completely wiped out in a little over 12 years. This could mean having no money in your retirement account at the age of 72.

There’s another problem. To make your PF work for you, you must remain invested for the long term. However, a lot of people withdraw their PF when they change jobs, thus losing out on the power of compounding. “In India, the PF is often used for other purposes, particularly when people change jobs. They end up withdrawing this accumulated corpus to buy expensive gadgets or go on a holiday, forgetting that the purpose was retirement planning,” says Arvind Usretay, India Retirement Business Leader, Mercer. A recent global survey by Mercer has ranked India’s retirement system the lowest among the 25 countries surveyed. “What continues to hold India back is the lack of retirement coverage for the informal sector and less than adequate retirement income expected to be generated from contributions made to the Employees’ Provident Fund (EPF) and gratuity benefits,” notes the Mercer study.

Another global study by Towers Watson points out that a significant majority of employees sees their employer retirement plans as the most important source of income in retirement. “Employers must educate their employees on the need for retirement planning and provide them the tools to help them save adequately,” says Anuradha Sriram, director, benefits, Towers Watson, India.

To ensure a comfortable life in retirement, one needs to make additional investments to build a corpus big enough to sustain one’s expenses for nearly 20 years in retirement. Here are a few options you can consider.

Mutual funds

Mutual funds are, perhaps, the best way to supplement your retirement savings. Among these, equity mutual funds have the potential to give very high returns, but also carry high risk. They are best suited to younger investors who can withstand short-term volatility to earn long-term gains. “Equity funds should be the instrument of choice for young investors who have 25-30 years to build a retirement kitty,” says Suresh Sadagopan, founder of Ladder7 Financial Advisories. An additional advantage of investing in equity funds is that the gains are tax-free.

If you are averse to taking risks, consider a balanced fund, where the equity exposure is lower. Ultra cautious investors can go for MIPs of mutual funds that invest only 15-20% of their corpus in stocks and put the rest in bonds. However, the returns of MIPs will not be able to match those of equity and balanced funds.


Ulips have earned a bad name because of the rampant misselling in the past. However, this much reviled product can be a good option for retirement planning. In recent months, insurance companies have come out with online plans that levy very low charges. The Click2Protect plan from HDFC Life charges an annual fund management fee of 1.35%, which is less than the direct mutual fund charges. The Bajaj Allianz Future Gain plan does not levy premium allocation charges if the annual investment is Rs 2 lakh and above. The Edelweiss Tokio Wealth Accumulation Plan doesn’t have policy administration charges. Some Ulips, such as Aviva i-Growth and ICICI Prudential Elite Life II, don’t have lower charges but compensate long-term investors with ‘loyalty additions’. The best part in a Ulip is that one can shift money from debt to equity, and vice versa, without incurring any tax liability. The corpus is also taxfree on maturity.

Source : http://goo.gl/y5gCLT

NTH :: EPFO likely to provide 9% interest for 2014-15

By PTI | 7 Jun, 2014, 12.41AM IST | Economic Times


NEW DELHI: Retirement fund body EPFO is likely to provide nine per cent rate of interest on PF deposits for the current fiscal to its over five crore subscribers, slightly higher than 8.75 per cent paid in 2013-14.

The initial estimates indicate that the Employees’ Provident Fund Organisation (EPFO) can easily provide nine per cent rate of interest on PF deposits for 2014-15,” a source said.

According to him, the improved market conditions, especially after the formation of a new government at Centre last month, have raised expectations of higher yields on various investments by the body.

EPFO manages a corpus of over Rs 5 lakh crore. It has received Rs 71,195 crore as incremental deposits from its subscribers under social security schemes run by it during 2013-14, which is 16 per cent higher than Rs 61,143 crore collected by it in 2012-13.

The source said EPFO also plans to unlock its investment of around Rs 55,000 crore in Special Deposit Scheme (SDS). The government pays a fixed rate of eight per cent on SDS to EPFO which is lower than other investment options available in the present legal frame work.

EPFO is also expected to improve yields or returns on its investment under the new norms prescribed under an investment pattern notified by the Labour Ministry last year.

According to the new pattern, EPFO can invest up to 55 per cent of its funds in debt securities issued by banks and financial institution and other body corporates.

The new investment pattern also allows EPFO to invest up to five per cent of its corpus into money market instruments, including units of mutual funds, equity linked schemes regulated by Securities and Exchange Board of India.

The new investment norms also provide for parking up to 55 per cent of the EPFO funds in a new category comprising government and state bonds.

Source : http://goo.gl/lljMvF

ATM :: How NRIs can build an India retirement corpus

Five essential factors that you need to consider if you plan to relocate back in your silver years
Vivina Vishwanathan |Thu, May 23 2013. 07 36 PM IST|LiveMint.com

There is a joke in Kerala that every family donates one of its sons to the Gulf (read as the UAE). This would equally apply to Gujarat or Punjab. And after spending much time overseas, many non-resident Indians (NRIs) return to India to live their retired life. It seems they know where to retire, but are not planning enough for it. On 1 May, Standard Life Plc, a savings and investment company, in collaboration with Insight Discovery, a research company, found in its wealth study, NRIs: successfully saving for retirement or not, that three quarters of the UAE NRIs expected their children to look after them.

This may not apply to all NRIs, but it is an important pointer to the fact that NRIs may underestimate the corpus needed and overestimate the willingness of their kids to fund their retirement. Here are five things that you need to do if you plan to relocate back home in your silver years.

Decide your age of retirement

Deciding when you will retire is an essential first step. Some people have age targets while others may aim at a corpus before they retire. Says Suresh Sadagopan, a Mumbai-based financial planner, “Knowing when you will retire helps in calculating the corpus needed for post-retirement period.”

Corpus required during retirement

The corpus required is a tough one to decide because you may not fully understand the costs in India. Also how much you need to save will depend upon the purchasing power of the currency you save in. During your working life, relocation in that sense is a bit easier because your employer would do the math for you but in retirement you are all alone.

Hence take the help of a financial planner to arrive at the living expenses you will need post retirement and the corpus required towards that end. “NRIs who plan to retire in India will need real estate and funds in the homeland. Considering that India is a growing economy and has investment options for NRIs, you can look at India for investment destination,” says Amit Kukreja, chief financial planner and founder, WealthBeing Advisors, a financial planning firm.

Pick the right retirement products

Retirement planning is a long-term goal which means you can take on higher risk for higher gain by investing aggressively in equities. If you have an investment horizon of 20 years or more, almost 60-80% of your investment should go into equity and real estate as it is a long-term investment plan and the remaining into debt. India offers a number of products for NRIs in all the asset classes but do NRIs see India as an investment option? Says Narayan Shroff, director, global research and investments, wealth and investment management—India, Barclays, “There is always a home bias. So NRIs do invest in India. Many of those who have migrated to nearby countries such as Singapore and the UAE continue to have linkages in India and they have better understanding of the local markets as well.”

Says Vishal Dhawan, a Mumbai-based financial planner, “If you want to invest in equity, NRIs can do it directly or through mutual funds (MFs).” To directly invest in stocks, NRIs have portfolio investment scheme—a facility notified by the Reserve Bank of India to buy Indian equities by non-residents. In MFs, NRIs can invest directly.

The Indian realty market has always been attractive for NRIs as it is easier to earn in stronger currency and pay in Indian rupee. NRIs also get home loans to purchase a house. Besides equity and real estate, debt should also form a part of your retirement portfolio. Says Dhawan, “As you near the age of retirement you should reduce your exposure to equity and move to debt. Again India offers debt investment options for NRIs in the form of debt MF, fixed maturity plans and gold exchange-traded funds.”

For conservative investors, bank deposits have always come in handy. NRIs can deposit money in Indian currency or in foreign currency and earn fixed returns on it.

Insure yourself

Insurance is a must, but unlike the work years where having a life insurance cover is just as important as having health insurance, retirement days make life insurance redundant to a great extent. That’s because by then you are able to build a sound asset base and have fewer dependants on your income. Health insurance on the contrary becomes very important.

Just keep in mind that if you are healthy, buying a fresh health insurance policy will not be a problem as insurers are required to offer insurance cover to first time buyers at least till 65 year of age.

Beyond that you may find it difficult. Says Kapil Mehta, founder, SecureNow Insurance Brokers Pvt. Ltd, “If you are retiring always take a higher cover of Rs.10-20 lakh as the medical expense for above 60 years of age is expected to be high.”

Make a will

Building up assets is very important for long-term goals such as retirement planning, but any prudent financial planning remains incomplete without estate planning. You need to have a succession plan in place to avoid heartburns and conflicts later on in the family.

Says Kukreja, “It is always better to discuss your property matters when you are alive so that there is neither ambiguity nor a cause for conflict later. If you don’t want to disclose your plan, you can issue a power of attorney to a person you trust to carry out the transfer.”

Source: http://goo.gl/NTH2kj

ATM :: Three steps to ensure a painless retirement

Apr 3, 2013 | Ranjeet S Mudholkar| Firstpost.com |


Retirement refers to the end of working life or, in other words, end of regular source of income for an individual. It may happen either voluntarily or once one attains a certain age in the organised sector, often termed as superannuation. In this case, he will get some benefits which will take care of his needs during the post-retirement period.

Traditionally, in the organised sector, retirement benefits like gratuity or pension have been paid as defined benefit plans where the liability to pay the same lies on the employer. This system is increasingly being replaced by defined contribution system wherein both the employer and employee are expected to make a contribution towards the accumulation of a corpus as corporations and governments across the world are finding it difficult to manage the liability by defined benefit plans.

In India, the average lifespan has increased due to improved medical and healthcare facilities. Along side, there is also growing trend of breaking joint family structure, which leaves retired couples dependent on the strength of such accumulated corpus and little support from other sources. The average life expectancy is already in the region of 70 years. If the current trend continues, by 2050 of an estimated 1.6 billion population, over 9 percent, or about 150 million, will be ageing. For the economic strength that India has today, it would be unthinkable to secure the financial well being of a major chunk of this expected number.

The scenario above clearly calls for an approach wherein one should take informed decisions regarding planning for retirement to ensure the financial well being post the working years, whatever profession he/she may be in. Thus planning for retirement assumes critical importance in the financial life of an individual and despite it being a long-term financial goal, it is prudent to start early as it is easier at that stage owing to the benefits of compounding.

Retirement Planning is an exercise which requires investment discipline and regular monitoring. The following important points must be kept in mind while planning for retirement:

Start Early: It may be difficult to plan retirement at the beginning of the career, but it is practical to start at a younger age. A person has higher risk bearing capacity to enable him earn suitably higher returns. The effect of compounding helps accumulate a sizable retirement corpus with the small streams of savings invested. A later planning will require a bigger effort to accumulate the same corpus as one would if he starts early. Besides, at later stage usually people have reduced capacity to take risks, which may hamper the earning of optimum returns from investments made. As an illustration the following table explains this aspect, where a required corpus of Rs 1 crore at the age of 60 is sought to be accumulated through monthly investments in a mix of assets giving an overall return of 12 percent per annum.

It can be clearly seen that all other factors remaining the same, saving Rs 1,815 per month at the age of 25 would be far easier than saving 21,010 per month at the age of 45 when the financial liabilities are also expected to be more.

Set clear retirement goals: One should be clear about the expenses in relation to the income earned. The expenditure post-retirement and the lifestyle that one would like to maintain will give an idea on how much money is required as corpus on retirement and what quantum to be invested periodically at an expected rate of return.

Be disciplined: Since retirement is the most distant goal, the other short-term goals might take precedence and one has the tendency to dip into retirement savings for fulfilling other goals. Also, the investment discipline should be religiously maintained at a robust scale to achieve the designated retirement corpus.

Approach a financial planner: Many people do their retirement planning by themselves without a wholesome understanding of needs at the time of retirement and in the post-retirement period. Engaging a certified financial planner or CFP professional will help identify the goals and suggest strategies to achieve them. Such professionals are adept at taking all factors into account while crafting a wholesome Financial Plan, the retirement planning being an integral part of the same.

India’s population has an average age of over 25 years. The retirement planning principle as well applies to the state where the correct and prudent steps initiated would see through conveniently a period after 40 years when over 15 crore people would aspire to spend the next 30 years of their retired life in the peace of financial security. The state would also be absolved of a huge incumbent social obligation. The tenet therefore is to “start early, invest regularly and sleep peacefully”.

The author Ranjeet S Mudholkar is a Certified Financial Planner and Vice Chairman and Chief Executive Officer, Financial Planning Standards Board India (FPSB India). The views expressed here are personal, and do not necessarily represent that of the organization.

Source: http://goo.gl/GGr5T

ATM :: Get maximum benefit from your PPF by investing now

By Ravi Ranjan Prasad Apr 07 2013 , Mumbai | Financial Chronicle|
Be sure you make full use of the 8.7% interest rate for FY14


April is the month to allocate major portion of public provident fund (PPF) investment planned for the financial year to get maximum benefit of high interest rate.

Some people keep postponing the PPF investment thinking that they will invest later during the financial year and play with risky assets like equity to make quick gains towards the beginning of the financial year.

This way you may lose on the Rs 1,00,000 limit later as at the closing of the financial year (March 2014), you may not have adequate liquidity to cover the limit and a great opportunity of compounding interest rate will be lost for one more time.

If the money planned for investment in PPF during the financial year is invested at the beginning of April, almost full interest rate of 8.7 per cent fixed for the financial year 2013-14 will accrue in the PPF account. For the next financial year, it will give a big boost to the outstanding principal amount on which the fresh PPF interest rate will be calculated.

For PPF investors, financial year 2012-13 was a good year, as the interest rate was revised upward to 8.8 per cent from previous year’s 8.6 per cent, and also the annual investment limit per individual was raised from Rs 70,000 to Rs 1,00,000.

Since this year the PPF rate has been revised downward, it makes more sense to start early in the year to make up for the 0.10 per cent reduction in the interest rate.

PPF interest rates are announced every year in March by the government for the upcoming financial year. This rates is benchmarked against the 10-year government bond yield.

No tax is payable on interest earned from PPF investment. Also the investment made in PPF account are eligible for deduction under Section 80C of the Income-Tax Act.

For those also eyeing tax relief by investing in PPF under Section 80C, should decide on the investment amount after deducting unavoidable investments, if any, in employee provident fund (EPF), life insurance and other such options. The total tax benefit can not exceed Rs 1,00,000.

Suresh Sadagopan, chief financial planner, Ladder 7 Financial Advisory, said, “PPF continues to be a good vehicle to invest because of attractive returns. People should look at it as a serious vehicle for long-term goals, like retirement, child’s education and marriage.”

The government has created PPF as an option for those who are self employed, while those who are employed have both the options of EPF and PPF to achieve their long-term goal.

PPF account can be opened either at designated banks like State Bank of India, Bank of India, ICICI Bank, or post office in your neighbourhood.

In banks’ PPF account, one can now make online deposits and avoid the hassle of standing in a queue at the bank’s branch. Post offices do not provide online investment facility so far.

Source: http://goo.gl/6DUue

NTH :: Reverse mortgage doesn’t make sense


Priya Nair | Mumbai March 31, 2013 Last Updated at 23:29 IST | Business Standard|

Relaxing the cap on loan tenure and removing the tax on annuity could make it more popular, say experts

Central Bank of India plans to launch a mortgage product, a combination of home and reverse mortgage loans. The public sector bank has applied to the Reserve Bank of India and the National Housing Bank for approval, says Ram Sangapure, general manager, retail banking.

The tenure for the product would be 20 years or more, of which the initial 10 years would be a normal home loan. After that, it could be converted into a reverse-mortgage product. After the first 10 years, the borrower has various options to pay, such as paying off the entire loan with the proceeds he gets at the time of retirement, repaying part of the loan and converting the rest into a reverse-mortgage loan or converting the remaining dues into reverse mortgage.

In a reverse mortgage, a homeowner can borrow money against the value of his or her home. The target segment for the product would be customers close to retirement and finding it difficult to get a normal home loan. Normally, banks prefer to give loans where the tenure ends while the borrower is still in service, earning a salary. This is because the repayment capacity could decline after retirement.

Explaining the rationale behind the product, Sangapure says, “Many customers buy houses at the beginning of their careers, when they are not eligible for a big-ticket loan. Later on, when they want to upgrade to a bigger house, they find banks not ready to give them loans, since they are close to retirement. That is why an option to convert the loan into a reverse mortgage will be attractive. That way, they can continue to stay in their house and earn a certain annuity from the reverse mortgage, which can also take care of expenses post-retirement.” The rate of interest would be the same as the bank charges for its home loans.

The Central Bank of India was the first bank to offer reverse mortgage. Currently, it has a portfolio of Rs 115 crore. The bank is hopeful the proposed combo product would appeal to people more than a basic reverse-mortgage loan, which has not found many takers, since it was launched in 2007. Most public sector banks offer reverse mortgage and so do some housing finance companies. It was envisaged as a product to help senior citizens with no source of income, but have a property in their own name. But the caps on the loan amount and tenure have worked against the product.

A reverse mortgage is available only to those above 60 years of age. The property being mortgaged should not have any loan against it. After mortgaging the loan with the bank, the borrower would be paid part of the amount as a lump sum and the rest in regular monthly or quarterly payments. If this regular payment, or annuity, is made by the bank, then there is no tax on it. But in some cases, the bank ties up with an insurance company to provide annuity to the borrower. In such cases, there is a tax on the annuity.

“A proposal to do away with this tax is under consideration,” says Sangapure.

If the annuity is paid by the bank after the completion of the 20-year tenure, the borrower would have to either repay the loan or surrender the property to the bank. If the annuity is paid by the insurance company, the borrower could continue staying even beyond the 20-year tenure and the bank would take over the property only after the borrower’s death.

Since the maximum tenure allowed for a reverse mortgage is 20 years, it means that if you take the loan at the age of 60, you will get payment only till the age of 80. The maximum loan amount allowed is up to 60 per cent of property value. This means, if your property is valued at Rs 1 crore, you would get only Rs 60 lakh. Given that average life expectancy has increased and living costs have gone up, at least in cities, this amount might not be enough for senior citizens, especially if they have no other source of income. That is the primary reason for the product not picking up, according to experts.

Sangapure also says banks don’t usually give loans of more than Rs 1 crore, which could be a drawback in cities such as Mumbai and Delhi, where property prices are high.

Another reason for the product not having caught on is that Indians have a lot of emotional value attached with their properties, says Nitin Vyakaranam, founder and CEO, ArthaYantra. “The concept of living on credit is still alien to most Indians. Besides, there is no inheritance or estate tax in India. So, people prefer to pass on their properties to their legal heirs,” he says.

Source : http://goo.gl/idwAl