Time to check health of your portfolio

This is the best time to rebuild existing portfolio by unlearn what we have learn about financial market and once again learn what is financial market all about and make new portfolio accordingly.

By this weekend gives you best portfolio which i had given in 2008 which had delivered amazing return.

https://indian-mutualfund.blogspot.com/2008/11/suggested-portfolio-as-per-current.html

50 Ways to Improve Your Finances in 2013

Along with a fresh start, the New Year brings uncertainty about changing tax laws, growing concern over online privacy and security, and challenges for almost every demographic group--even the wealthy, who face steep tax increases. To help you get ready to tackle your own money goals for 2013, we gathered our best advice from the past 12 months and organized it into 50 bite-size steps:

1. Be a year-round discount shopper

Specific holidays used to loom large in the world of coupon hunters, who expected to see massive discounts on July Fourth, Labor Day, Black Friday, and other big shopping days. But recently, that's been shifting as retailers are offering sales all year long, and often at unexpected times. In 2012, for example, retail experts noted that Christmas sales started in October, and continued all season, partly in response to customer demand. That means shoppers should always be on the lookout for the best deals, regardless of the calendar date

2. Ask for what you want

As the economy recovers, retailers are eager to pick up the biggest share of consumers' spending what they can, and in some cases, that means adopting more flexible pricing policies. Towards the end of 2012, several big-box stores, including Target and Best Buy, launched temporary price-matching policies. That trend could continue into 2013, which means customers can be more assertive about asking stores to match prices they find elsewhere

3. Coordinate budgeting with your partner

Much stress can come from disagreeing with your spouse or partner about how you should be spending shared income. Indeed, in author and yoga teacher JoAnneh Nagler's case, it even contributed to divorce. But she and her husband were able to reconcile (and remarry) when they jointly agreed to a disciplined debt-free lifestyle. By scaling back on restaurant meals and other splurges, they're able to invest in what they really value, including their creative pursuits and romantic weekend getaways

4. Pay off debt slowly

When you've built up a sizable amount of debt, it's virtually impossible to pay it off overnight, and attempting such a feat can be frustrating. That's why Nagler, who had $80,000 in credit card debt at one point, urges fellow debt-strugglers to go slowly. First, she changed her spending habits and set up individual savings accounts for each of her goals. Once she got those costs under control, she started paying off her debt

5. Prepare for tax changes

Tax rates are likely to rise for many Americans next year, especially high-earning ones. To lessen the stress from those changes, taxpayers should adjust their spending and saving habits as early as possible to prepare to hand over more cash to Uncle Sam. Taking advantage of any credits and deductions, as well as putting more money into tax-advantaged retirement accounts, can help ease the impact

6. Calculate your retirement number

Just 1 in 10 Americans have done the math to figure out how much they need to save for retirement, but it's an essential step in making sure there's enough cash for those much-deserved golden years. Financial advisers generally recommend saving enough to replace 80 percent or more of your income; that means someone who earns $80,000 should probably save around $2.1 million. Online retirement calculators can crunch the numbers for you

7. Make better retirement choices

Paying high fees, choosing portfolios that are overly conservative (or overly risky), and failing to update or even check on those investments on a regular basis are just a few of the common mistakes people make with their retirement accounts. To avoid missteps, employees can often rely on free services offered through their company's human resources department or retirement services provider. Fidelity, for example, offers free seminars and online information to clients

8. Save a quarter of your income

Alicia Munnell, director of Boston College's Center for Retirement Research, cautions that putting aside 9 percent of your income into a retirement account is "grossly inadequate." Someone who starts saving at age 35, plans to retire at age 67, and expects a 4 percent return, for example, needs to save double that, even after taking Social Security into account. Other financial experts recommend saving as much as one-quarter of your income, in both retirement and after-tax accounts, to make sure you're fully covered

9. Make it automatic

If manually shifting money into savings and investment accounts is too time-consuming or too painful, consider setting up automatic deposits. Many banks make it easy for customers to do that, and, in fact, might even offer rewards for doing so. Wells Fargo, for example, waives monthly service fees on some of its accounts when customers set up recurring automatic transfers

10. Leverage your credit card

If you pay off your credit card bill each month and earn rewards for your spending, don't forget to cash in on them. The biggest bang-for-buck often comes from purchasing retailer-specific gift cards, which have been pre-negotiated by card companies. Farnoosh Torabi, financial expert and television personality, recently picked up an Apple Macbook Air with her points, which she also uses to buy gift cards for family members.

11. Find your perfect piece of plastic

If your credit card isn't meeting all your needs, it might be time to find one that does. Comparison websites such as nerdwallet.com, indexcreditcards.com, and creditcards.com make it easy to compare the benefits of different cards to figure out which one suits your needs. If you carry any sort of balance, there's only one factor to focus on: finding the lowest interest rate

12. Upgrade your bank

Bank policies can vary widely, from offering above-average interest rates on savings accounts to making it easy to budget online with extra tools. Consider your own lifestyle and then find the bank that best matches it. If you travel a lot, you probably want a large bank with thousands of ATMs throughout the country (and beyond). If you're trying to save more, then you might want to focus on the savings rates

13. Demand more from the one you have

Customers are increasingly voting with their feet and switching banks when they're not happy with their current one. That also means customers have more leverage to ask for the changes they want from their current bank, as banks struggle to retain loyal customers. If you want lower fees or a higher interest rate on your savings account, ask your bank what they can do for you--they might be able to offer you a better deal than the one you're currently getting

14. Consider a credit union

Frustration with banks' policies, such as new fees, has motivated thousands of customers to jump ship and join credit unions, according to the Credit Union National Association. It can be a good decision, especially considering that credit unions often offer higher interest rates on savings accounts as well as lower fees and lower rates on auto loans and mortgages. They also prioritize spreading financial literacy to their customers

15. Get a raise

Just because the economy's struggling to make its big comeback doesn't mean you have to delay asking for a raise. Certified financial planner Lauren Lyons Cole suggests first checking out salary-comparison sites, such as Payscale.com and Salary.com, to see if your own income is out of whack with that of your peers. If it's lower than it should be, review your accomplishments and present them to your boss, along with a request for a raise

16. Earn more money on the side

The lack of job security these days has inspired many Americans to pick up a second stream of income by moonlighting. According to the website Payscale.com, the highest-paid moonlighting gigs are in law, clinical psychology, senior copywriting, and information technology security. Freelance website Elance.com predicts that the trend toward freelancing, especially in the creative-services sector of the economy, will only grow throughout 2013

17. Manage your time better

When people juggle more than one job, they can quickly feel overwhelmed with responsibilities. Veteran job-jugglers say they survive by staying organized, waking up early, and avoiding time-wastes such as television. Many also work on the weekends and some even take a sabbatical from their day jobs to focus exclusively on their second job for a few months

18. Take advantage of your HR department

When you land a new job, the human resources department can help you sign up for all of the new benefits, from flex spending accounts to health insurance to retirement accounts. Signing up for retirement benefits as soon as possible can pay off later: The earlier you start putting money away, the sooner it can start growing. TD Ameritrade calculates that saving $100 a month between ages 21 and 41 will create a nest egg of $471,358 by age 67, assuming a return of 8 percent per year. Waiting until age 41, however, will generate just under $60,000

19. Prepare to earn less after 40

If you want more motivation to ramp up that side income in 2013, here it is: In most professions, income stops rising around age 40. Payscale.com reports that in many professions, you earn quickly in your twenties and thirties as you become more valuable. Then around mid-career, you plateau, and as a result, salary increases slow down. (Certain careers, including those in law and high-tech, are exceptions.) One way to make up for that loss is to earn more money outside your full-time job

20. Burnish your entrepreneurial skills

According to a survey by Generation Y research and consulting firm Millennial Branding, 1 in 3 employers want their employees to have entrepreneurial experience. Knowing how to conceive, build, and promote a business idea is increasingly valuable in the new economy, even for those seeking more traditional jobs.

21. Learn to cook

Replacing take-out and restaurant meals with home-cooked goodness can save you hundreds of dollars throughout the year. If you feel hesitant in the kitchen, a few hours with the Food Network or browsing foodie blogs will help get you in the mood. Investments in certain tools, such as cookbooks, immersion blenders, or quality pots and pans can also make the kitchen more enticing after a long day

22. Invest in your home entertainment system

If you're a movie buff, you have a lot of new choices that are cheaper than seeing movies in the theater. Hulu Plus, Apple TV, and Roku are among your relatively affordable options, especially when you consider how much you'll save by skipping weekly trips to the theater

23. Focus on home improvements that pay off

Leaky windows and attics can drive up heating bills in the winter and cooling bills in the summer. Consider investing in insulation as well as a programmable thermostat, which can cut energy costs by 30 percent over the year. Smart power strips, which cut power to electronics when they're off, can also help reduce electricity costs. LED lights are another smart option

24. Give better gifts

Do you know what people really want for holidays and their birthdays? Money or gift cards. It might sound impersonal, but a survey by Discover found that such fungible items top wish lists for both men and women. In fact, the National Retail Federation went so far as to name gift cards as the hottest gift of 2012, because they've grown so much in popularity. The fact that fewer cards come with fees and many offer extra loss protection has also contributed to that trend

25. Get to know the holes in your homeowners' insurance policy

The worst time to discover that your homeowners' insurance policy doesn't include reimbursement for water damage is right after a flood. Yet many homeowners don't understand the ins and outs of their policies, which can lead to nasty surprises. In fact, most standard policies don't cover earthquake damage, flood damage, or water damage from sump pump backups. (Homeowners have the option of adding supplemental coverage to handle these scenarios.)

26. Protect your online identity

The past 12 months have seen a series of high-profile security breaches, including at Zappos and Barnes & Noble. To make sure you're as protected as possible, consider changing your passwords regularly, reviewing bank account statements each month to check for errors, and being especially wary of hyperlinks to deals promoted over social networking sites. Hyperlinks embedded within emails should also be treated with suspicion

27. Stop before you shop

When you're surrounded by advertisements and material temptations, it's easy to buy without thinking. But one organization, Jews United for Justice, urges people to first ask themselves a series of questions about the purchase. The questions include: "Is this something I need?" "Can I borrow, find one used, or make one instead of buying new?" and "Will this purchase enhance the meaning and joy in my life?" The group distributes credit card sleeves with the questions to encourage more thoughtful spending habits

28. Ignore official-looking (but dubious) solicitations

It's one of the most common scams around: A company poses as an official government agency in order to solicit your attention (and funds). It might send out mail that's covered in intimidating warnings, such as "$2,000 fine, 5 years imprisonment, or both for any personal interfering or obstructing with delivery of this letter." But they're really just trying to sell you something you probably don't need. The Federal Trade Commission calls the practice outrageous and says it's illegal to falsely suggest something bad will happen unless the recipient asks quickly. The bottom line: Ignore such solicitations

29. Donate for free

You don't have to be rich to be charitable. Consider donating your blood, gently used books and CDs, and your time this year. For extra power, get together with friends to form a giving circle, so you can leverage your dollars and give to causes together

30. Learn how to talk about money with your kids

Parents are famously awkward when it comes to talking about money. A T. Rowe Price survey found that just half of parents talk to their kids about savings goals and spending and savings trade-offs, and even fewer discuss higher-level concepts such as inflation and investing. But research routinely suggests that parents play a powerful role in how kids handle money as adults, so if you have children, try to get over your awkwardness to share some important life lessons this year.

31. Protect your money from your children

Baby boomers have been generous toward their adult children, inviting them to move back home and offering them direct financial support. But often, that kind of generosity hurts parents' own retirement nest egg. In fact, even the parents of two Olympic gold medalists, Gabby Douglas and Ryan Lochte, revealed major financial troubles of their own. Before putting their own financial security at risk, parents should consider whether they can really afford the help they're offering

32. Use technology to ease those conversations

If you're struggling to explain the concept of limits to your children, there's an app that can help: "Can I Buy?" designed by the husband-and-wife team behind the Massachusetts-based developer Sqube. After crunching some numbers for you, the app tells you whether or not you can afford that purchase that you're considering. The creators themselves got the idea when they were trying to explain to their young daughter why she could not buy a new toy

33. Take advantage of other new online money tools

A new website, SmartAsset.com, hit the Web this year, and it's a useful one: It helps users make complicated personal-finance decisions, such as whether they should buy or rent, or which mortgage to take out. If you're looking for some help with number-crunching, the site could be the one for you. Mint.com is another useful site for budgeting and getting organized

34. Check your Social Security benefits

Since the Social Security Administration stopped sending out paper statements via snail mail each year, you might be missing your annual estimate of just how much Social Security income you're likely to receive in retirement. But there's an easy way to get that information: Visit socialsecurity.gov/mystatement to see your earnings history and projected future benefits. More than one million people have already done so

35. Be an alpha consumer

Jon Yates, the official problem-solver at the Chicago Tribune and author of What's Your Problem? Cut Through Red Tape, Challenge the System, and Get Your Money Back, says persistence is often the most important factor when seeking a response from a company. That might include threatening to take your business elsewhere, or asking to speak to a manager or executive until you get the answer you want

36. Start a social media account

Airing grievances about specific companies on a blog, Facebook, or Twitter can also be an effective way of getting their attention. Just be sure you don't sacrifice your own privacy and security in the process. Many banks, for example, run active Twitter accounts, but they caution customers to take specific questions off the public venue and onto a phone line or email account. Talking over social media, after all, means talking in front of an audience

37. Pay less for gas

In addition to seeking out the lowest-priced gas station in town, you can also stretch your gas dollars through more creative means. Those include lightening your car by unloading any heavy items stored in the trunk, carpooling, making sure tires are properly inflated, and replacing clogged air filters. An even safer bet is replacing some of your car time with public transportation or biking

38. Refinance, or not

When interest rates are low, refinancing to lock in a lower rate on your mortgage is tempting. But doing so also comes with costs, including closing costs and your own time. (Completing the paperwork can take hours.) Before jumping on the refinancing bandwagon, crunch some numbers with an online refinance calculator to help you figure out if it will really save you money

39. Improve your credit score

Credit scores can hold a lot of power over your life; they influence your loan rates and the ability to rent apartments, and they can even play a role on job applications. According to money expert Liz Weston, author of Your Credit Score, the most important steps you can take to improve your score include removing any errors and making regular, on-time payments to all revolving accounts, including credit cards. Paying down debt helps, too

40. Get your credit report

You're entitled to a free credit report every year, which you can access through annualcreditreport.com. Reviewing it regularly makes it possible to check for (and correct) any mistakes, as well as catch potential problems, such as identity theft, before they escalate. The Consumer Financial Protection Bureau also announced this year that it will start supervising the credit bureaus as part of an attempt to make the world of credit scores and credit reports more transparent to consumers.

41. Learn patience

Research co-authored by Columbia Business School professor Stephan Meier found that impatient people tend to have lower credit scores, which means they pay more for loans. Study participants who were most willing to wait for their cash rewards had, on average, scores that were 30 points higher than those who were the least patient. The suggestion? Learning to wait for rewards can pay off in the form of lower loan rates

42. Check your insurance policies

According to MetLife, just 3 in 4 married couples with young children have life insurance. That means 1 in 4 do not. Given the high cost of raising children (the Agriculture Department estimates $234,900 per child before age 18), that leaves families in a vulnerable position if one or both parents were to die. While there's some hassle involved, the cost of taking out life insurance is relatively low (a half-million dollar policy on a healthy 35-year-old might be one dollar a day, says MetLife), so consider signing up if you haven't already

43. Organize your financial paperwork

When Superstorm Sandy hit in 2012, thousands of people on the East Coast had to quickly leave their homes. If your paperwork is in order, it will be easy to know what to grab if you suddenly have to do the same thing. Essential papers to carry with you include identification, insurance information, and family documents, such as birth and marriage certificates and wills

44. Create photographic evidence

Just in case you ever have to file an insurance claim, take photos of your most valuable possessions, including furniture, jewelry, and televisions. Creating a paper trail of those goods, any damage they sustained, and subsequent claim filings can make it easier to follow up with the insurance company and collect reimbursements

45. Prepare for emergencies

In the spirit of always being ready, consider coming up with a plan for an alternative place for your family to stay in an evacuation scenario. When the power goes out, it's harder to find the closest available hotel, or to talk to friends about staying with them. It's also a good idea to get an emergency kit together, so if you have to hunker down in your basement for a few days without power or running water, you know you could survive. The kit should include batteries, flashlights, water, changes of clothes, cash, non-perishable food, and a first-aid kit

46. Beef up your emergency savings account

No matter how prepared you are, emergencies can end up costing a lot of money. Consider funding an emergency savings account that could cover you in the event of weather disasters, car breakdowns, and other unexpected calamities. Financial advisers generally recommend putting away three to six months' worth of expenses

47. Plan to work well past retirement age

Older Americans are increasingly working into their 70s, for financial as well as psychological reasons. In other words, many of them enjoy their work. A Charles Schwab survey found that one in three 60-something middle-income workers don't want to retire. To prepare for a long career beyond age 65, career experts recommend making sure you're doing work you love. That might mean launching a second career, unrelated to your primary one

48. Change your habits

In his book The Power of Habit, New York Times reporter Charles Duhigg explains how we can change our habits by focusing on the cue and reward. If you want to start exercising every day, for example, "cue" it up by putting on your running shoes before breakfast, and then reward yourself afterward with a piece of chocolate. Eventually, the new habit will become a natural part of your day

49. Check out your older self

Here's an easy way to motivate yourself to commit to big changes in 2013: Focus on your future self. Research by Hal Hershfield, assistant professor of marketing at New York University's Stern School of Business, has found that showing people aged photos of themselves makes them more likely to put money away for later. You can get in touch with your future self by writing a letter or even downloading an aging app, such as AgingBooth, for a sense of what you'll look like in 30 years. Spending more time with your grandparents can also help

50. Think about where you want to be (financially) in a year

When you're brainstorming for your big money goals for the year, try to focus on specific steps, instead of big, overwhelming dreams. For example, if you want to build financial security, goals might include spending less on food or developing a second stream of income. BJ Fogg, director of Stanford's Persuasive Technology Lab, suggests breaking big goals into small baby steps

Here's to a prosperous 2013!

Source: http://in.finance.yahoo.com/news/50-ways-improve-finances-2013-155537722.html?page=all

Neighbours are not financial wizards

Love thy neighbour is a common adage, but most people extend it to include financial decisions as well. For instance, a sustained rise or a sudden fall in the stock market is often observed due to frenzied buying in bubbles and selling in crashes.

In fact, as a recent study by Ameriprise Financial India shows, Indian investor even used this ‘follow the neighbour’ formula for purchasing insurance, gold and other financial instruments as well.

There are strong preferences for certain products in specific cities. No wonder, every city has its preference for certain instruments. Mutual funds and gold are preferred by Delhi, stocks are favoured by Mumbai, Chennai wants real estate and Bangalore is into debt. The survey was done between the age group of 28-45 and with an average annual household income in excess of Rs 12 lakh.

TWO DIFFERENT FAMILIES: YOU AND YOUR NEIGHBOURS

• Goals, time horizon will differ
• Risk-taking ability will differ
• Financial commitments will differ
• Age group may differ
• They share successes, not failures
• ...then, why follow them?

However, following the investment decisions of one's neighbour or friends or even relatives is not the best strategy. The culture of collaboration does not work while making financial decision for your family. There are a host of other reasons that should be considered while making investment decisions.

Your reason to save or invest may not be the same as your neighbour's. The other family may be investing for their child's school education, while you need it for higher education — clearly, the amounts required would be vastly different. For them, a 10-year debt instrument may work, whereas since the requirement is much more, you may have to opt for equity.

More importantly, your monthly outgo may be completely different. As financial planner Suresh Sadagopan says, individuals should count their priorities before copying. "When you have commitments, having cash in hand is important. And you have to account for it. But many don't," he says. Do not invest because somebody else is investing and he/she thinks you are missing out on something big.

Your neighbourhood uncle at 50 may be looking to earn 8.5 per cent on a 10-year NHAI bond, because it means a nice little safe corpus at the age of 60, when he retires. For you, at 30, it makes little sense. If the stock market falls further, there may be a good opportunity to enter and stay invested for the next 20 years.

Conversely, if you are 50, it makes more sense to stay away from high-risk, high-return products, because capital erosion is the last thing you want. Going with the good old bank fixed deposits or post office deposits may keep the corpus safe with steady returns.

Random investment is something that one should be wary of. The Ameriprise study talks about most individuals investing through real estate, insurance, gold and so on. But, none of these investors know if the asset class suits their profile.

However, you need to match your requirements to an asset class before investing. "For instance, real estate and start-ups could work wonders for some individuals, while it may end up being disastrous for others," explains Bimal Gandhi, chairman of Ameriprise Financial India. Therefore, do not pick a scheme just because good friends have done so.

Most important: It is unlikely that many will discuss their investment failures with you. Most will tell you about their successes. Certified financial planner Anil Rego says individuals see how their friend(s) have made money in an asset class/scheme. And then invest. "But, they fail to understand that this may or may not be the right time to enter that scheme. A classic example is gold and many are more than willing to enter gold now just because many have gained from it in the past year," he explains.

Source: http://www.business-standard.com/india/news/neighboursnot-financial-wizards/462019/

Delays are costly in retirement planning

People exceedingly depend on provident funds and fixed deposits to provide for their requirements post retirement.

Whether or not you make other New Year resolutions, here is one you should make. Don't postpone savings or investments.

The new urban lifestyle has made people more prone to spending than to saving or investing.

With India Inc prospering and young professionals getting handsome packages, people today are financially independent at a younger age. As a result, most of them become complacent about their long-term finances.

While everyone is aware of their financial needs and aspirations, only a few assess their ability to meet critical long term goals - saving for retirement and saving for child's education, to name two key ones.

Yet, procrastination and delay in formulating and implementing a proper financial plan can have serious repercussions on future financial goals. Postponement in planning can result in a higher financial burden in the later stages of life, and one may not be able to save enough for long term goals.

Let us understand the cost that the delay can cause with the help of an example. Keeping in mind the current inflation rates, it is estimated that an MBA degree that costs Rs 4,00,000 today will cost Rs 20,00,000 in 15 years time.

How many parents will be financially ready to bear this cost when required for their child without dipping into retirement funds? According to Aviva Young Scholar Insights, a recent survey conducted across 12 cities in India, it was found that investment for a child's education is the topmost priority for 72 per cent of Indian parents.

But 81 per cent of parents also admitted that they have no clue on how to go about meeting the cost of their child's education. It then becomes even more important for young parents to start saving early so that the expense for their child's education doesn't become a burden later.

Apart from saving through conventional methods like a savings bank account, parents can choose insurance policies to protect their children's future.

Insurance ensures that the child's education is unhindered, in case the parents are no longer around. There are also child plans from other investment options like mutual funds which aim at creating a corpus.

Retirement blues

Similarly, due to lack of a formal social security system in India, retirement is another top area of concern for 45 per cent of the people in India.

People exceedingly depend on provident funds and fixed deposits to provide for their requirements post retirement. But keeping in view the current rate of inflation, the steep rise in the cost of real estate and the substantial rise in the overall cost of living in India, these savings alone will not suffice.

For a comfortable lifestyle post retirement, in absence of a regular stream of income, one needs to start planning for it right away.

Here again, it is easy to save for retirement in the initial years of one's career, as there is no pressure to support a growing family and you don't have high medical expenses. However, if you delay investing even by a year, then there is a ‘cost of delay'.

Take a typical pension plan offered by insurers. A 30-year-old man with a target retirement fund of Rs 25 lakh wishing to retire at 58, has to start investing close to 24,000 an annum by way of premium.

However, if he delays this by five years and starts investing at the age of 35, he will have to pay close to Rs 38,000 an annum for same accumulated amount of Rs 25 lakh, an increase of 58 per cent. This is based on an assumed net investment return of 8 per cent an annum.

Nowadays, people can look at several options for saving for retirement like pension and retirement plans by insurance companies, mutual fund schemes.

These, when combined with PPF and fixed deposits can give an individual a balanced financial portfolio to attain the retirement goals.

Thus, judicious and proactive financial planning will make sure that you have enough resources with you in the future, to fulfil your child's aspirations and take care of your retirement needs. Start planning for future financial needs without any further delay.

Remember, while the key to successful planning is to start early, at the same time, it is never too late to get started.

Source: http://www.thehindubusinessline.com/features/investment-world/article2763836.ece?ref=wl_features

7 Golden rules of retirement

Experts contend that retirement planning should start from the day you start earning. Sound advice indeed, but one that is seldom followed. So ET Wealth decided to bring to you seven rules of retirement planning that have been advocated by experts for decades. Follow them and you can be sure to retire in comfort

1. Save 10% of your income for retirement

The first rule of retirement planning is also the easiest to follow. If you have a regular job, then 12% of your basic salary and an equal contribution by your employer that flows into your Provident Fund account is a good way to build a nest egg. The best thing about this option is that you cannot avoid it. EPF rules require all employees to contribute 12% of their basic income to retiral savings, which include the Employee Provident Fund and the Family Pension Fund. It is a forced saving that becomes the default retirement plan for many individuals.

The amount of contribution to the EPF does not matter. Given the power of compounding, even a small contribution can bloat into a big sum over the long term. Don't underestimate the significance of the savings in the first few years. Assuming that a 25-year-old investor puts away a fixed amount every month, his savings in the first five years will account for 44% of his total corpus when he is 60 years old. The later you start, the more you will need to save. If you have started late, say in your 40s or 50s, you will have to invest up to 20-25 % of your income if you want a comfortable retirement.

The 10% rule is crucial for self-employed professionals and others who are not covered by the EPF umbrella. They can opt for mutual funds, choosing the ones that suit their risk appetite and age profile. However, you need to have the discipline to put away the given sum on a regular basis.

SMART TIP:

Start an SIP in a mutual fund and automate the process by giving an ECS mandate to your bank. In this way, your retirement planning will stay on track.

2. Increase investment as your income grows

According to recruitment firm ABC Consultants , India Inc hiked salaries by 12-15 % in 2011. By how much did your income go up? More importantly , did you step up the quantum of your investments accordingly? Not many people do that. Sure, inflation has been on the rise and most of this year's increment would have been nullified by the increase in the cost of living. But even when there is a marked increase in the investible surplus, people don't match their investments with the increase in income.

This is understandable since it is human nature to put things off, especially ones that require sacrifices in return for future rewards. This can severely undermine your retirement planning. If a 30-year-old with a monthly salary of 50,000 starts saving 10% ( 5,000) for his retirement every month in an option that earn 9% per year, he would have accumulated 92 lakh by the time he is 60. Now, assuming his salary increases by 10% every year and he raises his investment accordingly, he would have a gargantuan retirement corpus of 2.76 crore. If he does waits five years to raise it by 50%, he will have 1.93 crore.

It is important to maintain the retirement savings rate at 10% so that your nest egg doesn't fall short of your requirements. The icing on the cake can be periodic boosters whenever you get a windfall, such as a tax refund or a lump-sum payment in the form of, say, an annual bonus. The trick is to commit yourself to save more in the future.

SMART TIP:

Whenever you get a raise, allocate half of it to savings. You might not notice the change since you will be enjoying the other half of the raise.

3. Don't dip into corpus before you retire

This might sound weird, but every time you change jobs, your retirement planning is at a grave risk. This is because you have the option to withdraw your PF balance at that time or transfer it to the account with the new employer. Besides, there is the option to withdraw your PF amount if you need the money for specific purposes, including your child's marriage, buying or building a house, or in medical emergencies . Dipping into the corpus before you retire prevents your money to gain from the power of compounding. Don't underestimate what this can do to your retirement savings over the long term. A person with a basic salary of 25,000 a month at the age of 25 can accumulate 1.65 crore in the PF over a period of 35 years. This is based on the assumption that his income will rise by 10% every year.

Yet, many people are unable to reach the 1 crore milestone in their PF accounts. Although the paperwork is minimal, a lot of people prefer to withdraw their PF money when they change jobs or for other purposes. This, despite the fact that the government discourages you from withdrawing the money. The withdrawals from the EPF within five years of joining are taxable.
The sudden flush of liquidity can trigger a spending spree and ill-planned decisions that can cripple your financial planning. Often, the money goes into discretionary spending, which means your retirement planning is back at square one. A late start means a smaller corpus even if you start investing more.

SMART TIP:

Instead of withdrawing your EPF balance when you change jobs, transfer it to the new account by filling 'Form 13' and submitting it to the new employer. This should be at the top in your list of priorities at the new workplace.

4. Withdraw 5% a year initially, then step up

One of the biggest challenges for tomorrow's retirees is to ensure that they don't outlive their savings. This is a distinct possibility because of two major factors: rising cost of living and an increase in life expectancy. High inflation, in fact, is enemy no. 1 for the retired investor. Sure, the inflation rate will not remain as high as it is right now. However, over 20 years, even a nominal inflation of 6% will reduce the value of 1 crore to 29 lakh. Besides, Indians are living longer. Life expectancy rose from 61.3 years in 2000 to 66.46 years in 2010. By 2020, the average Indian can expect to live till 72 years. In urban areas, where people have better access to healthcare, and in higher income groups, the life expectancy could extend beyond 80 years.

To ensure that you don't run out of money in your old age, you must have a drawdown plan in place. The thumb rule is not to withdraw more than 5% of the corpus in the first five years of retirement. This can be progressively increased to 10% by the time the retiree is 70. This essentially means that the retiree should draw down less than the appreciation in the initial decade, but in the next 10 years, he can withdraw more than the accretion to the corpus. At 80, even a 20% annual drawdown rate would be considered safe.
The problem arises because most Indians are not comfortable with the idea of drawing down from their corpus. There is an overarching desire to leave something behind for their heirs and dependents. Given the inability of a corpus to beat inflation in the long run, the retirees should be prepared for a depletion of their corpus.

SMART TIP:

You can safely draw down half the inflation-adjusted appreciation every year. If the portfolio has earned 12%, you can easily withdraw 6%.

5. 100 - age = Your allocation to stocks

An investment portfolio's performance is determined more by its asset allocation than by the returns from individual investments or market timing. How much you have when you attend your last day at work will depend on how you divided your retirement savings between stocks, fixed income and other asset classes. Experts recommend that you should have an equity exposure of 100 minus your age. So, at 30, you should have about 70% of your portfolio in equities. At 55, the exposure to this volatile asset class should have been pared down to 45%. After you retire, your exposure to stocks should not be more than 25-30 % of your portfolio.

Even within equities, the type of stocks (or equity funds) in your portfolio should vary with age.
This is not a hard and fast rule and should also take into account the financial situation of the individual. It assumes that all people at a certain age will have the same risk appetite . This is not true. A 45-year-old person with a good income and few dependants will be able to take on more risk than someone who is 30 but has a low and unsteady income.

SMART TIP:

Invest in asset allocation funds that redistribute the corpus depending on the age of the investor. As he grows older, the exposure to equity is progressively reduced.

6. Borrow for education, save for retirement

Indian parents love to save for their children. Whether it is for their education or marriage, or even to provide them with a comfortable life, children are the biggest motivators of savings in the country. But before you pour money into a child plan, make sure your retirement savings target has been met. In an effort to fulfil the needs of the child, Indian parents sometimes sacrifice more than they should. Some even dip into their retirement funds to pay for the child's education. This is risky because your retirement is going to be very different from that of the previous generations . It will be entirely funded by you and won't have the cushion of defined benefits.

This doesn't mean you should compromise on your child's education. It can still be done through an education loan. In the past two decades, we have seen how the MRP of a product has been replaced by its EMI in our everyday lives. Home, travel, car, education, gold, consumer durables-you can get a loan for almost anything and everything. What's more, the government encourages you to take loans by offering tax breaks on the interest paid on housing and education loans. No bank, however , is going to lend you for your retirement. Sure, there are reverse mortgage schemes, but those require your house to be kept as collateral .

Under Section 80E, income tax deduction is available only if the education loan has been taken for yourself, your spouse or children . Also, the loan should be from a bank or a financial institution notified for the purpose . No tax deduction is available if the loan has been taken from a private source.

SMART TIP:

An education loan helps inculcate financial discipline in the child. If he is responsible for the repayment, he gets into the saving habit early in life.

7. Save 20 times your annual expenses

This rule is different from others because it is based on how much you spend, not on how much your investments earn. Knowing your post-retirement expenses is crucial to retirement planning. Some expenses, such as those on clothing and entertainment, come down. Others, such as transportation, medicine and insurance, go up. Add up all the expenses you are likely to incur after retirement to know how much you will need per month. Then, multiply this amount by 240 to know how much should be your retirement corpus.

However, this calculation is based on a number of assumptions. Firstly, you should not have outstanding loans when you hang up your boots. Secondly, you and your spouse should have sufficient health insurance. A survey conducted by HSBC earlier this year shows that unforeseen expenses and medical costs are the biggest concerns for Indians during retirement.

The good news is that Indians are increasingly becoming aware of the need to plan their retirement. In a 2010 survey by Bharti Axa Life Insurance in eight top cities in the country, 74% of the respondents said that they knew how much they would need after retirement . Three years earlier, only 53% had a fix on how much they would require in their sunset years.

SMART TIP:

Buy a health insurance cover that continues till you are 70-75 years old. It is difficult to buy one afresh when you are older and not so healthy.

Source: http://timesofindia.indiatimes.com/business/india-business/7-Golden-rules-of-retirement/articleshow/10811264.cms

When Fund manager changes, Monitor the fund carefully

One of the things that worry the slightly evolved mutual fund investors is change in fund managers. By the time you figure out that some of the equity funds you have chosen are actually making good money, and that this was because of the actions of someone called a fund manager, you could be hit with the news that the fund manager is changing.

This is a bit of a problem. You see, unlike some funds in the more mature markets, the fund manager is not really a brand in India. People generally invest in a particular fund because it has done well. Or, if they are beginners, they are likely to invest because the fund company is a big brand like ICICI or HDFC or Reliance. At some point, those investors interested in learning how mutual funds work come to know that investment decisions for each fund are taken by a fund manager.

And then they hear a fund manager has changed. This happens a lot. Over the last 24 months alone, there have been 187 fund manager changes for equity funds. The total equity assets managed by the Indian fund industry is Rs2 lakh crore. Over the last 24 months, there has been a change in fund managers handling about Rs98,000 crore - almost half of the total industry.

Is this a problem? Is this something that investors should worry about? Unfortunately, the only reasonable answer is that it depends. It's actually quite hard to figure out quantitatively how much of an impact a change in a fund manager has had on a fund. All equity funds are managed within a context of their investment mandate, their institutional parentage and, obviously, the market conditions. Pin-pointing the exact impact of these factors and that of a fund manager is impossible.

There have been a few cases when a fund manager's exit has led to a slump in funds' performance. However, there have been some cases when a new fund manager has proven to be better than the old one. At the end of the day, there is little in it except to say that when a fund manager changes, investors have to be extra vigilant in monitoring their fund for any changes in performance.

That still leaves investors with the question of why is there such a flux. Why are there so many changes in the management of funds? One reason is that there is generally a lot of flux in all sort of skill based jobs in India. Like any other white-collar job in a growing industry (and especially in financial services), changing jobs is a major way of moving up in one's profession. It's unfortunate that the managements of fund companies are unable to create conditions in which this is not the case, but that's the way it happens.

The other issue is of good fund managers themselves moving up the ladder into marketing and general management jobs to move up in their professions. I've seen this happen time and time again in the fund industry. Once a fund manager gets a good track record, he seems to spend more and more time talking to investors (at least the bigger ones) than on proper fund management.

This is basically a selling job. Or, he's expected to start managing and mentoring junior fund managers, regardless of whether the junior is actually any good at it.

Eventually, he gets out of fund management altogether and becomes CXO, for some value of X. This is great for his career and the way most corporate careers work. However, perhaps fund management jobs should follow a different model, like that of surgeons may be. You don't hear of a good surgeon moving forward in his career by abandoning surgery and becoming a hospital administrator, do you?

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/when-fund-manager-changes-monitor-the-fund-carefully/articleshow/9351703.cms?curpg=2

Benefit from flexibility of multi-cap funds

When you put your money in an equity mutual fund, do you also tell the fund manager which stocks to buy? No, and yes. While investors don't give any instructions, a fund with a fixed investment mandate picks only those type of stocks.

For instance, a large-cap fund will invest only in index-based heavyweights and other blue chips. You won't find a small-cap company in its portfolio. This is why large-cap funds tend to move slowly and surely compared with other categories. Similarly, a small-cap fund will focus on smaller companies, forever hoping to zero in on the next Infosys that will turn it into a multibagger.

Multi-cap diversified equity funds have given higher returns

On the other hand, multi-cap funds invest across the entire spectrum of stocks, starting from large-caps all the way down to small-caps. They have a flexible mandate, which helps them pick winners from across market capitalisations.

"Wealth creation happens when the fund management process has flexibility. Multi-cap funds have an in-built mandate to capture the upside across the market spectrum," says Om Ahuja, head of private wealth management and strategy at Emkay Global Financial Services.

The performance of multi-cap diversified equity funds bears this out. In the past three and five years, this category has given higher returns than those from other categories of diversified funds.

Multi-cap funds are the best long term investment option for creating wealth

As companies belonging to different market segments demonstrate different levels of volatility and returns, it is best for investors to hold stocks of varying market capitalisations.

"Multi-cap funds provide the investors with the offer to build a diversified portfolio by giving them access to all kinds of equities," says KN Sivasubramanian, chief investment officer, Franklin Templeton Investments.

For instance, in the past one year, mid- and small-cap funds have done exceedingly well, but in the long-term, multi-cap funds have consistently outperformed the other categories. "Multi-cap funds are the best investment option for creating wealth in the long term," points out Ahuja.

Work in all market conditions

The flexible mandate of multi-cap funds gives them access to greener pastures in all market conditions. At the beginning of a bullish phase, it is usually the large-cap bellwether stocks that do well. Midway through the bull run, these large-cap stocks reach high valuations and the focus of the investing community shifts to mid-cap and then finally small-cap stocks.

"Retail investors cannot gauge which part of the market will perform well-large-caps, mid-cap or small caps. By investing in multi-cap funds, they can gain in all market conditions," says Saurabh Jain, associate vice-president, retail equities research, SMC Global Securities.

In financial crisis, a multi-cap fund will be able to bear redemption pressures The 'go anywhere' strategy works well during downturns as well. "While a given set of conditions may not benefit one part of the multi-cap fund portfolio, it could benefit the other, thereby creating a counter-balance effect that generates long-term results," says Maneesh Kumar, managing director, Burgeon Wealth Advisors. When the bears are on the prowl, small-cap and mid-cap stocks fall harder than large-caps. Multi-cap funds are able to cushion themselves better than funds which are focused only on these vulnerable segments.

A deft fund manager can realign the fund's portfolio rapidly and thus benefit from the changing market mood. "Besides, in a black swan kind of a scenario, such as the financial crisis that we experienced in 2008, a multi-cap fund will be able to bear redemption pressures better compared with a mid- and small-cap fund as it is likely to be more liquid," adds Kumar.

Consistent outperformers

We looked at the performance of the top 15 multi-cap funds during a bull phase and a bearish phase. Except for three instances out of the 30 observations, the multi-cap funds outperformed their benchmarks. Most of the funds outperformed their benchmarks in both the bear and bull phases.

"Multi-cap funds have delivered in all kinds of environments and market sentiments. It is true especially for the top performing ones in the category," says Vinod Sharma, head of private broking and wealth management at HDFC Securities. Apart from the freedom to invest in stocks of any market capitalisation, multi cap funds are also not shackled by any particular investing style.

Benefit from both value and growth investing

These funds can benefit from both value and growth investing, depending on their objectives. "This is because the fund manager can pick from a much larger population of stocks," says Sharma. For instance, Franklin India Flexi Cap Fund is a multi-cap fund and follows a bottom-up approach to stock selection.

The fund's investment objective is to provide investors with a blend of growth and value investment options. The focus is more on individual companies and their potential to create wealth over the long term.

Betting on the fund manager's ability

The fund manager's ability to select stocks is crucial to the success of a mutual fund. However, this becomes even more critical in case of a multi-cap fund. "Investing in a multi-cap fund is akin to investing on the fund manager's capabilities," says Jain.

This is because the risk levels of a multi-cap fund can rapidly change, which requires deft handling by the manager.

The multi-cap fund manager must also manage sectoral allocations

Not only does he have to monitor a larger universe of stocks, but the possibility of making the wrong choice widens due to the freedom granted to him.

If he fails to read the market conditions correctly or is not able to change the allocation of the fund's portfolio, the returns are likely to fall behind. The multi-cap fund manager must also manage his sectoral allocations well. Sectors tend to move in cycles and he should be able to change his allocations depending on the economic cycle. This is why multi-cap funds carry a higher risk than index funds or large-cap funds. Look up the fund manager's track record carefully before you invest in one.

Higher churn, higher costs

Since multi-cap funds have a larger universe of stocks to buy from, their churn also tends to be higher than that of other fund categories. The average portfolio turnover of the multi-cap funds is 79%, while that of large-cap and mid- and small-cap funds are 73% and 64%, respectively. Portfolio turnover is a measure of how frequently assets were bought and sold in a fund by the manager during the course of a year.

The higher the turnover rate, the higher will be the transaction or trading costs for the fund. Although these costs are not included in the fund's expense ratio, they are paid for by the investors' money, not the fund manager's salary. Thus, funds with higher portfolio turnover eat away into the returns. Over the long term, this can affect the returns from the fund significantly.

The churn does not seem to be so abnormal

However, experts don't see this as a significant drawback as long as the fund is able to generate the returns that justify the higher costs. "The churn does not seem to be so abnormal," says Sharma.

Besides, churning depends on the style of investing as well. Both the DSPBR Equity and the Templeton India Equity Income funds are multi-cap schemes. While the former has a portfolio turnover of 216%, the latter's measurement is only 3.49% as it functions on value investing.

"Churning depends on the style of investment. Also, a higher portfolio-turnover need not always lead to higher costs. If the individual bets work, the gains can easily more than cover the trading costs," says Sivasubramanian.

Not taking enough risks

Another drawback of multi-cap funds is that fund managers are somewhat reluctant to allocate a higher percentage of corpus to small- and mid-cap companies. Hence, they are not able to effectively capitalise on the USP of the category. "At the time of redemption pressure, it is difficult to exit mid- and small-cap stocks. Due to liquidity concerns, a multi-cap fund manager may exhibit a large-cap bias to be on the safe side," says Kumar. The non-availability of information could be another reason why the exposure to small-cap and mid-cap stocks is restricted.

However, die-hard fans of multi-cap funds defend the category. "Although one can contend that they could have been more aggressive, the superior returns generated by multi-cap funds belie these allegations. Besides, a rise in the ratio of small-caps in the overall allocation can augment the fund's inherent risk," says Sharma. Experts believe that it is too early to draw any inference about multi-cap funds. "Pure multi-cap funds are rather new in the Indian market. Hence, any evaluation would be unfair as the funds have essentially been around for one market cycle," says Sivasubramanian.

Should you invest?

Multi-cap funds are not of much utility for investors who understand asset allocation and base their investment decisions on it.

"It becomes difficult for investors who follow asset allocation principles to ascertain as to how these funds will fit in their portfolios as these virtually buy anything irrespective of capitalisation or sector," says Kumar. Asset allocation is the most important factor determining a portfolio's performance.

Multi-cap funds make an excellent investment option

Studies show that 94% of the portfolio's returns variance is determined by how funds are spread across asset classes. Only a small portion is determined by market timing and security selection.

Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services, says that if you have a large portfolio, the asset allocation call is best taken between the investor and the financial adviser. In such cases, multi-cap funds lose their relevance. "However, if you have a small portfolio, then multi-cap funds make an excellent investment option," he adds.

Source: http://economictimes.indiatimes.com/quickiearticleshow/9258055.cms

Growth or dividend option? Let cash flow needs, tax outgo help you decide

While investing in mutual fund schemes, investors can choose from the dividend or growth option. When it comes to fixed income funds, both the options have certain advantages. But there are some factors to be considered before you make your choice.

CASH FLOW NEEDS

The primary criterion for choosing an option is cash flow requirements .

If there is no interim cash flow requirement, the growth option is better; in this option, the returns are reflected in the movement of the NAV. There are also no hassles in investing the interim cash flows. If there is requirement for interim cash flows from the investment , then the dividend option is better. The frequency of the dividends would be as per the requirements of the investor and the availability of the dividend frequency options (monthly, quarterly, etc) in the fund.

The asset management company (AMC) endeavours to maintain the stated dividend frequency, subject to availability of distributable surplus.

TAX TREATMENT

The other relevant parameter is the tax efficiency of the returns being taken home through the dividend and growth options. Dividends are tax-free in the hands of the investor, but there is a dividend distribution tax (DDT) that is deducted by the AMC on behalf of the investor and passed on to the government.

The rate of the DDT in case of liquid funds is 25% (plus surcharge/cess). For non-liquid fixed income funds, there are two rates of DDT: for individual /HUF investors, it is 12.5% (plus surcharge/cess) and for corporate investors, the rate is 20% (plus surcharge/cess). From June 1, the DDT rate for corporate investors has gone up to 30% for all categories of fixed income funds. In the growth option, the gains are taxable in the hands of the investor, ie, there is no distribution tax. As per the current tax laws, the growth option taxation depends on the holding period: returns from mutual fund units held for a period of less than a year are called short-term capital gains (STCG), and from holdings of more than a year are long-term capital gains (LTCG).

STCG is taxable at the slab rates for individuals; most investors nowadays are in the highest tax bracket of 30% (plus cess). In case of LTCG, the investor has the choice of paying the incometax either at 10% (plus cess) without taking the benefit of cost inflation index or at 20% (plus cess) after taking the benefit of cost indexation. As we see from the tax structure , as per the current tax laws, the choice of dividend/growth option should be based on the intended holding period.

For a horizon of less than a year, the dividend option is better as the individual DDT rate of 12.5% (plus surcharge/cess) is lower than the STCG rate of 30% (plus cess). The only exception to this would be an individual who is in the 10% tax slab, for whom the STCG tax rate would be lower, but that would be a rare case. For a horizon of more than a year, the growth option is preferable , as the 10% (without indexation ) rate is lower than the current DDT rates. The investor should opt for the 20% rate only if the net tax incidence (with indexation benefit) is lower than the 10% rate.

EFFECTS OF DTC

So far so good, in that the choice between dividend and growth options is based on cash flow requirements and tax efficiency.

The grey area comes with the proposed Direct Tax Code (DTC), scheduled to be implemented from April 1, 2012. It is a grey area because at this point of time, it is aproposalwhichisyettobemade into law and may undergo changes by the time it is implemented. As per the proposals, the returns from the dividend option will be clubbed with the income of the investor (ie, there would be no distribution tax) and would be taxable at the slab rates.

In the growth option, there would be no distinction between short-term and long-term holdings as such, but the benefit of indexation would be applicable for a holding period of one year from the end of the financial year in which the asset is acquired . The taxation on the growth option would be as per the slab rates, which means 30% for most investors. Since both dividend and growth options would be taxable at the hands of the investor, there would not be much of a difference in terms of taxation except where the intended holding period would be enough to be eligible for indexation benefit. In that case, the growth option would be more tax efficient.

Joydeep Sen

(CFP, Sr Vice-President – Advisory Desk BNP Paribas Wealth Management)

Source: http://articles.economictimes.indiatimes.com/2011-07-06/news/29743785_1_dividend-distribution-tax-dividend-option-growth-option/2

'Living too long a serious threat to Indians'

Banks and other intermediaries who provide access to the National Pension System may now be a bit more forthcoming in opening pension accounts.

The panel, headed by GN Bajpai, looking into revitalizing the National Pension System has recommended that these entities be paid a commission of up to 0.5% of the investment. In an interview with TOI, Bajpai speaks on why the product, despite being the best for retirement savings, needs to be pushed.

The panel has said that financial products have to be pushed.

Any financial product in India has to be sold as nobody queues up for buying any financial insurance product. Have you seen anybody queuing up to buy insurance or mutual funds? That is the ethos of this country. The NPS is a wonderful product, it is the equivalent of pure desi ghee and we have not tampered with the product at all. But it still has to be pushed. Pension is a time bomb which is ticking in Indian society. Without protection, retirees will ultimately become dependent on society.

Your recommendation for ad valorem charges comes at a time when markets like UK are moving away from commissions.

In UK and the West, pension has become a pull product because of the level of financial literacy. But the mindset of Indian society is different and people do not want to think about these requirements. I am talking about the mindset today which may change tomorrow.

What will be the impact of revised charges on investors' savings?

The impact would be that those who make low contribution will be better off. Even for those who pay more it is not that the sky is the limit in respect of charges - there is a limit in absolute terms. Today, there are some commentators who feel that system is loaded in favour of the rich because in percentage terms the smaller investors are paying more in terms of charges.

When you talk about financial inclusion, do you mean to say that a pension plan should be opened with every bank account?

On financial inclusion there is a lot of publicity going around. But when they talk about banking products, they should also be taking about pension and insurance. Living too long is a serious threat to Indians because we have not made adequate provisions. We have always worried about dying too soon but have not made preparations for living too long. Ultimately, why do you want a bank account? It is to park your surplus funds.

Will extending the government scheme to contribute Rs 1,000 into every small investors account not put pressure on the Centre's finances?

If you start expenditure for this, it is actually an investment because money goes straight into the account of the pensioner. Secondly, there is zero leakage because the money cannot be spent and it goes into investment which, in turn, will have a spill over effects. We are not saying that it should go on for ever. It can be reviewed later.

What changes have you proposed for the PFRDA?

Basically, PFRDA will have to build more regulatory capacity. When you have eight or nine fund managers with Rs 10,000 crore it may not matter. But tomorrow when this goes to Rs 1 lakh crore with many more fund managers, a different regulatory capacity would be required.

Source: http://timesofindia.indiatimes.com/business/india-business/Living-too-long-a-serious-threat-to-Indians/articleshow/9117883.cms

Choose your own investment options, pension fund managers

If you are looking at building your retirement corpus, you can consider the New Pension System (NPS). Launched by the Indian government, the Tier-I scheme offered by NPS is a pension scheme that allows investors to choose their own investment options and pension fund managers.

Open to anyone between 18 and 55 years, a minimum of Rs 6,000 needs to be invested every year, until heshe turns 60. At maturity (60 years), investors would be required to invest a minimum of 40 per cent of the accumulated amount to purchase a life annuity. The remaining can be withdrawn in a lump sum or in a phased manner.

Investing Rs 6,000 every year at a 12 per cent interest rate, for the maximum term of 37 years, one would have collected a corpus of over Rs 3.65 crore. However, these returns are not guaranteed and depend on how the pension fund you choose (out of the designated seven) actually performs. Like any other pension scheme, NPS invests in government and other debt products. Its equity investments will be capped at 50 per cent.

At present, there aren’t many pension products to choose from. Besides the Public Provident Fund (PPF), there are just a couple of plans in the mutual fund and the unit-linked insurance pension products segment. Most insurance companies have pulled out their unit-linked products after the Insurance Regulatory Development Authority (Irda) came up with a 4.5 per cent guaranteed returns mandate. However, the traditional retirement plans offered by insurance companies remain a good option with their built-in guarantees, and option for loans against the cash value of the policy.

While PPF remains a popular investment avenue, the restriction of investing Rs 70,000 every year works against it. There is no upper limit for investment in NPS and others.

However, it is with regard to fund management charges (FMC) that NPS really scores. While FMC for NPS is a mere 0.0009 per cent or 90 paise a lakh, it is one per cent or Rs 1,000 per lakh in case of mutual funds. Insurance companies charge up to 1.35 per cent or Rs 1,350 per lakh.

Many believe that the long lock-in period for the pension scheme works against NPS. PPFs and other existing pension plans that allow partial withdrawals are far more liquid. At present, all annuities coming out of pension products are taxable as income. It will be the same in case of NPS, too. Even in terms of tax benefits, tax free PPFs may be a better option than NPS, which at 12 per cent may not give attractive post-tax returns.

Source: http://www.business-standard.com/india/news/choose-your-own-investment-options-pension-fund-managers/430483/

How to retire happy with Mutual funds

Nikhil Somani, a 25-year old engineer working for a reputed Indian company, is a firm believer in financial planning and is already making regular investments for his immediate goals that include buying a car (in the next two years) and a home (in the next five years). And he vows to follow these financial plans religiously in order to meet all the goals. Just like any other average Indian, Somani too wants to retire at 55 and lead a comfortable life thereafter.

More importantly, he has planned for it too and is investing Rs 10,000 p.m. towards it. However, Somani is an isolated case and most youngsters keep postponing their retirement planning. “Many a times, investors are tied down with meeting short-term goals like wedding, buying a house and keep postponing retirement planning,” says Anup Bhaiya, MD and CEO, Money Honey Financial Services. And the solution is to do the financial planning in a holistic way. Remember, retirement planning is a subset of your overall financial planning.

START EARLY

There is another advantage of starting early that is known as the power of compounding (i.e., the money you save in the initial years generates compounded returns for a very long time). For example, to reach a retirement corpus of `1 crore, at 12% rate of interest, you will have to invest Rs 43,471 per month if you have only 10 years in hand. But if you have 35 years in hand, you will reach the same target by investing just Rs 1,555 per month. In other words, the 20s and 30s are probably the best time to plan for retirement — of course, along with other financial and career goals.

EQUITY ROUTE

The first thing that you need to decide is what corpus you would need at the time of retirement. “It is important to first quantify how much you will need to maintain your lifestyle at the time of retirement,” says Amar Pandit, CEO of My Financial Advisor. Quantify how much you need to spend to enjoy your current lifestyle. Assuming inflation in the 6-8% range in the long run, you can arrive at the amount you need at the time you retire.

Very high inflation on the one hand and the absence of a social security system on the other hand makes maintaining your lifestyle post retirement a big challenge. Therefore, it is imperative that the retirement corpus has to be invested in products that can generate maximum returns in long term. It is proved historically that equity generates maximum returns among all asset classes, so investors can use the equity funds/balanced funds to build their retirement corpus.

EQUITY FUNDS

Though you can invest directly in the stock market to generate your retirement corpus, the mutual fund route is more convenient. “The mutual fund route is more transparent and comes with the least costs. It also offers liquidity, making it a good candidate for long-term investment,” points out a wealth manager with a foreign bank.

BUILD A PORTFOLIO

“Depending on where you stand today and your risk-taking ability, you should construct a portfolio of funds with a long-term consistent track record,” explains Pandit. Most financial planners recommend diversified equity funds if you have more than 20 years to go for your retirement. Since Somani has full 30 years to retire, his retirement plan can be made of three equity mutual funds. “We recommended him to invest `10,000 per month through SIPs in three equity mutual funds namely, HDFC Equity Fund, Franklin Prima Fund and DSP Equity Fund,” says Bhaiya of Money Honey Financial Services.

The assumption here is simple. Assuming a 15% return from equities per annum for the next 30 years, `10,000 per month invested will give him a corpus of `6.92 crore. Assuming that Somani will shift his corpus entirely to debt at that age, and earn a 6% post-tax return, his interest income would be `3.46 lakh per month. Now, we come to the expense part. Somani’s current monthly expense is `30,000 per month. Assuming a 8% inflation, at the age of 55, his monthly ex-penses would be `3.02 lakh comfortably helping him retire peace-fully. Depending your risk-taking ability, you can either go for an ac-tively managed mid cap funds (i.e., for high risk takers) or go with a plain-vanilla index fund (ie for low risk takers).

BALANCED FUNDS

“Balanced funds also make good candidates for retirement planning since they offer good post-tax returns in the long term,” says Abhishek Gupta, a certified financial advisor with Mumbai-based Moat Wealth Advisors. This is because if the average equity component is kept above 65% (most of these balanced funds do it), there is no capital gains tax after a year of holding. He prefers HDFC Prudence Fund and Birla Sunlife 95 Fund amongst the balanced fund category.

ASSET ALLOCATION FUNDS

Asset allocation funds (where the fund managers move between equity and debt depending on the mar-ket conditions) are another option that can be considered. But not all financial planners prefer to go with these readymade tools. “Being fund of funds, the asset allocation funds are treated like debt funds and taxed accordingly,” points out Gupta. Instead, it makes sense to invest in the right combination of equity and debt funds and generate better post-tax returns than the fund of fund route.

MANAGE THE CORPUS

Building a retirement corpus is just one part of the game, managing the corpus post retirement is another ball game. The first part is to reduce the high-risk equity component slowly. “As you move closer to your retirement age, i.e., when you are 5-7 years away, shift the corpus gradually into hybrid products,” says Vishal Dhawan of Plan Ahead Wealth Advisors.

The next step is the use of systematic withdrawal plans (SWPs) offered by mutual funds to reduce your tax burden in the golden days. Please note that systematic withdrawal plan will ensure that the money in your hand is subject to capital gains tax whereas a pension income generated from other products is added to your income and taxed at the marginal rate.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/how-to-retire-happy-with-mutual-funds/articleshow/7490769.cms