Planning for your kids future

Now, just casually mention "I WANT TO SAVE FOR MY CHILD'S FUTURE" and you will be flooded with hundreds of calls, emails, messages, etc from Insurance agents and Banks.

And, with info overload, more often than not, investors fall into the "cheapest" bait and then regret in leisure.

So, in a genuine attempt to clear the clutter and confusion, here is an article on the way to go about setting up a Financial Plan for your kid’s future.

Congrats.  So, you have just been blessed with a angel like child and you have already started dreaming making the child a Doctor/Engineer.

You being educated have decided that you will invest in the child's name right now to build a corpus for the same.

Another congratulation since you are on the right track of Financial Planning by choosing to invest for your child at such a young age. This will ensure that the investment to give the Compounding Magic. The biggest aspect in your favour is TIME. You have clear goal and you have sufficient time to achieve the same. Because the earlier you start, the more the time available for your investments to grow, and the bigger the corpus.

BEFORE INVESTING:

It is inevitable that you prepare a road map of future goals for your child wherein you plan when and how much you require for your kid.

Ex : College Admission (15 years)

        Grand Birthday (10 years)

        Marriage (25 years)

This road map will help you and your Advisor to decide on the Asset wherein your investment can go. While arriving at the figure, do factor in the inflation. While calculating the figure, it is better to err on the higher side rather on the lower side. 

WHERE TO INVEST:

          After you prepare a list of your future goals and approx dates, you should decide on your risk tolerance and prepare an ideal Asset Allocation preferably with your Financial Advisor.

Jointly decide on how much percentage should be invested in Mutual Funds, Insurance, FDs, PPF, Gold, Real Estate, etc.  Strike a good balance between capital safety and returns.

It is widely accepted fact that majority of Indian parents blindly look at low yielding PPF and other Fixed income instruments for their children which obviously, due to inflation and taxes, may leave well short of your targeted corpus. With this in mind, you should have a higher exposure to Equity (via mutual funds, preferably) to generate inflation plus returns.

CHILDREN INVESTMENT NO DIFFERENT:

          The basic thing which every Parent has to understand that whether you are investing for yourself or your children, each investment carries the same risks, same returns and even the same tax.  Just because you are investing for your kid does not make the Insurance Company or the Mutual Funds to show any favour in terms of either costs or returns.

FIRST THINGS FIRST:

          The Foundation of a Proper Financial Plan rests on Adequate Life Insurance. You need to take Adequate Term Insurance Plan as Term Plans are very cheap as it is pure risk policy.

Next step is taking a Health Insurance Plan. Take Adequate Health Cover and increase the Cover by topping up in about a decade.

Then invest in Diversified Mutual Funds, which I keep recommending in these columns.

CHILD PLAN:

          Regarding Child Plan, I am not in favour of any Child Plan, be it Mutual Fund or Insurance. They are pure Marketing Gimmick and work in the same way as any other scheme by investing in a mix of equity and debt instruments. There is nothing special here. Avoid child specific investment schemes.

I have observed that 9 out of 10 people blindly go for Child Insurance Plans. This is a waste of money.

Child Insurance Plans are long term gambles similar to ULIPs. The returns depend on how well the Insurance Company manages the Investment portion.

Child Plans also are very expensive because of their charges. In fact, these charges are not just for the 1st year but continue for several years.

Insurance companies bring out these Child Plans to play on your emotions and squeeze money from your pocket. I am against these Child Plans and Pension Plans. While investing, the brochure paints a rosy picture and you are sure to get lured to invest. But, at maturity you will realise that the returns are very poor. It is always better to keep Insurance and Investment separate.

An ideal Child Plan is the one which covers the Parent and not the Child. Insurance is taken to provide financial security in case of death of proposer and hence there is no point in taking Insurance in child's name. You are advised to take Insurance in your name, make your Child Beneficiary nominee under the guardianship of your wife.  Opt for a Plan which has "Waiver of Premium" clause wherein all future premiums are waived off in event of death of parent and most importantly, your child will continue to get all the Benefits promised by the Policy.

Equity Mutual Funds is the only asset class which grows FASTER than your kid’s tuition bills.

No child plan can match the returns of top of even average rated diversified equity fund. In the name of offering you a custom investment cum insurance product they charge high costs with lock in, surrender charges etc.

PPF:

          Yes, as a parent you can invest in PPF for your child. But, do note this will added to your Tax Status and you can claim only a max of Rs.1 lakhs and not Rs.2 lakhs.

PPF is very very safe and almost every advisor worth his name recommends PPF. But, considering that PPF tends to give returns matching with Inflation, I would suggest looking at assets which gives returns above Inflation and that obviously will be Equity Mutual Funds.

But, yes, surely a combo of PPF + term Plan beats any Child Plan any day especially since now PPF is now market linked.

But, on another note, a combo of Mutual Funds + Term Plans beats all other combo!!!

MUTUAL FUNDS:

          You should look at investing regularly in large- and large- and mid-cap funds to get the most of power of compounding and SIP investments. As said earlier, mutual funds are the only asset class which has the potential to deliver above inflation returns on a consistent basis. I strongly suggest you to invest through monthly SIPs to make use of the volatility of the fund's NAV movement.

My model mutual fund portfolio for your kid would be

AXIS TRIPLE ADVANTAGE FUND

BNP PARIBAS DIVIDEND FUND

BIRLA SUNLIFE FRONTLINE EQUITY FUND

DSP BLACK ROCK TOP 100 EQUITY FUND

HDFC PRUDENCE FUND

ICICI PRUDENTIAL DYNAMIC FUND

IDFC PREMIER EQUITY FUND

L&T EQUITY FUND

MIRAE ASSET INDIA OPPORTUNITIES FUND

RELIANCE EQUITY OPPORTUNITIES FUND

RELIGARE INVESCO CONTRA FUND

TATA EQUITY P/E FUND

UTI DIVIDEND YIELD FUND

You can choose any 5-6 funds from the above based on your risk appetite.

If you do not want to go to a financial advisor and invest in 1 single fund, then you can consider investing in ING FINANCIAL PLANNING FUND - AGGRESSIVE. This Fund is a Fund of Fund which invests in Best of Funds across AMCs and has given a good account of itself in its short history.

STICK to the Asset Allocation.

Review your portfolio regularly and take corrective action, if required.

Move your corpus away from equity to Debt as you near the Target Date.

FINALLY,

          Do review progress made by your portfolio regularly and take corrective action if required.

If there are new goals or if present goals have been met, then appropriately increase/decrease your investments and also modify your portfolio accordingly.

 Make sure to monitor the progress of these funds and consider moving to debt funds as you approach the year when you need the investment.

 Stick to the above funds for Good Gains, which should give returns definitely better than ULIPs.

Best of luck,

Srikanth Shankar Matrubai 

Also visit http://goodinsuranceadvisor.blogspot.in/

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POWER OF COMPOUNDING

Albert Einstein called "Compounding" as the 8th Wonder of the World.
Let us find out why with another example.

There are 'n' number of stories on the Power of Compounding. But the one which I like the most is this...

You may know the story, but still read it because the twist at the end is not what you expected.
3 persons, Mr.A, Mr.B and Mr.C joined a company. They all were given the option of either taking Rs.10000/- daily for next 30 days or taking 1paisa for Day 1, 2 paise for day 2, 4 paisa for Day 3, 8 paisa for Day 4....wherein double the amount what you got previous day and henceforth for the next 30 days.
Mr.A decided to take Rs.10000/- daily.
Mr.B and Mr.C decided to take 1 paisa and the double the amount every day.
At the end of 20th (twentieth) day, Mr.B badly needed urgent cash and took away Rs.10000/- from his accumulated corpus.
At the end of 30 days,
Mr.A's total amouted to Rs.3 lakhs (Rs.10000 * 30)
Mr.B who took Rs.10000/- on 20th, was however better than Mr.A and had Rs.5 Lakhs at the end of 30 days.
Mr.C who did not withdraw anything, had at end of 30 days, surprise, surprise, left with Rs.1 Crore!!!
Just look at the difference between Mr.B and Mr.C. Both took the same salary of doubling every day but just because Mr.B took a paltry Rs.10000/- only on the 20th, he was left with Rs.95 Lakhs lesser than Mr.C.
Well, then, that is the power of compounding!!!

Also visit http://equityadvise.blogspot.com

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BEST Fund for a Passive Investor

Dear Investors,
There are more than 2000 funds in India and selecting the right one is a daunting task even for 'experts' leave alone lay investors.


It is extremely difficult for investors to pick the BEST funds and track them regularly and make the right rebalancing whenever required. Here's where FUND OF FUNDS come to the rescue of the investors.

What is FUND OF FUNDS :
A FUND OF FUNDS is mutual fund which invests in other funds. In other words, it creates a portfolio of funds and provides the investors with a huge diversification by spreading risk across a larger universe.
The question which every mutual fund investor finds difficult to answer (even the experts) is when to 'change' a fund.............here I am not talking about rebalancing a portfolio by increasing/decreasing equity/debt but actual replacement of a fund either due to underperformance/change in strategy of fund/etc.
Mutual Fund investing is not a easy task. You not only have to pick the 'right' fund, but also keep a track of them and should consider exiting a fund if it underperforms and find the right replacement. FUND OF FUNDS eliminates the need for frequent switchings.

PROS :
1. Diversification :
As FOF like the ING Financial Planning Fund invest in more than 1 mutual fund, the investment portfolio is broadened.
2. Investor need not worry about moving from equity to debt or vice versa as the Fund Manager will do the same.
3. FOFs are proven to give superior risk adjusted returns.
4.  Convenience :
An investor in fund like ING financial Planning Fund is spared from the bother of tracking the performances of various schemes and also he need not worry about churning his portfolio.
5. FOFs eliminates the cost and hassle of investing, maintaining and tracking multiple mutual fund schemes



CONS :
1. Costs : Since the FOF keeps regularly replacing funds, this involves transaction cost to the fund and thus expense ratio could be high because of this constant churning.
However, SEBI has put a cap on Expense Ratio and costs should be reasonable.

2. Tax Treatment : Even if the FOF is fully invested in Equity, the FOF is treated as Debt funds and thus they are liable for Dividend Distribution Tax and Long Term Capital Gains tax.

One Caveat would be, that in case of a prolonged Bull run, ING FINANCIAL PLANNING FUND would give less return than Pure Equity FUND(they will be having typically more than 95% exposure to equity) as the ING FINANCIAL PLANNING FUND would be forced to sell equities at every rise and would thus lose out on compounding.

Srikanth Matrubai's take : Yes, the cost are on the higher side but you are paying for expertise. Selecting a Good Fund is highly difficult task in the Indian context due to the vast gulf which separates the Best Performing Equity Funds from the really bad ones.
The Monthly re-balancing and inputs received from meeting various fund managers are value addition provided by FOFs like ING Financial Planning Fund which a lay investor would find it difficult to replicate.



WHICH FOF?
Though there are quite a number of Fund of Funds in India, almost all of them invest in their respective Fund House schemes and thus do not give benefit of different style of investment and could be baised.
So, you should consider investing in that Fund of fund which aims to pick the BEST fund from which Fund House it belongs to, without any bais.
There are few funds which do this job namely Kotak FOF,  ING Financial Planning Fund among others. 
I would prefer ING Financial Planning Fund as the Fund House is highly experienced in this segment and is in this FOF business since more than 7 years now., (2006).


WHY ING FINANCIAL PLANNING FUND ?
ING FINANCIAL PLANNING FUND is a rare Fund of Fund which actually invests in Fund of OTHER Fund Houses. It aims to pick the BEST of Funds from across Different fund Houses and put them together into one.
ING FINANCIAL PLANNING FUND is a asset allocation fund which provides you the opportunity to spread your money among asset classes with one single investment.
ING FINANCIAL PLANNING FUND FOR WHOM??
One reasont to invest in ING Financial Planning Fund is 'simplicity'. You can simply invest in ING Financial Planning Fund instead of bothering which fund to buy, which one to hold, which one to replace as this Fund does all this 'headache' job for you.

Why invest in Fund of Funds?

Compared To Investing In Several Mutual Funds Separately, A Multi Manager
Fund of Funds Brings Unique Advantages

1. ING FINANCIAL PLANNING FUND are ideally suited for investors who are not looking at actively managing their asset allocation.
2. ING FINANCIAL PLANNING FUND can be considered to newcomers to Mutual FUND as the Fund has Debt exposure which provide cover in case of a bear run.
3. Investors who want to eliminate the cost incurred on research and advise on investment cam also consider investing in ING FINANCIAL PLANNING FUND.

ING FINANCIAL PLANNING FUND ensure automatic asset allocation.
ING FINANCIAL PLANNING FUND too are Diversfied Equtiy FUND with a lesser exposure to Equities!!
Go for it.
ING Financial Planning Fund takes Diversification to a new level. The Fund invests in Diversified Funds across Fund Houses and across themes/sectors and ensures wide diversified portfolio with just 1 single fund!!


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TATA RETIREMENT SAVINGS FUND

Modelled to cater to your retirement needs.


With rising inflation especially Medical Inflation, and the fact that there is no Social Security by the Govt of India, it is necessary to be adequately prepared when it comes to Retirement Planning.

With this in mind, Tata Mutual Fund has come out with Tata Retirement Savings Fund.  The Fund  aims to provide a financial-planning tool for long-term financial security based on retirement-planning goals.


INVESTMENT STRATEGY :
The strategy of the fund will be predominantely Large Caps with a mix of mid-cap firm, however, the focus will mainly be on big caps.

This retirement-specific mutual fund scheme has an "Auto-Switch" facility. The fund is designed to meet the investment needs of investors in different age brackets. It offers three options to investors—'Progressive Plan', 'Moderate Plan' and 'Conservative Plan'—with varied percentage of equity and debt assets.

The "Auto-Switch" feature is supposed to do away with the hassles of adjusting the equity-debt proportion of the portfolio with increasing age. The fund is assuming that the investor depends on his "advisor" for switching assets between equity and debt with increasing age. The facility of "auto-switch" does the necessary asset allocation automatically—as the investor crosses into a different age bracket.

The progressive plan is for investors below 45 years of age, with 85-100 per cent of funds allocation in the equity assets. Once the investor turns 45 he/she would be automatically switched to the moderate plan, where the equity allocation will come down to 65-85 per cent.



Thereafter, at the age of 60, investors will be shifted to the conservative plan, where fund allocations in debt assets will reach as high as 100 per cent. In short, a single scheme will turn out to be a debt scheme after being an equity scheme



Exit load: It carries a 5 per cent exit load if redeemed within one year, 4 per cent if redeemed between 1 and 2 years, 3 per cent if redeemed between 2 and 3 years, 2 per cent if redeemed between 3 and 4 years, 1 percent if redeemed after 5 years from the date of allotment.

The Age Limits are not compulsory and can be flexibly used by an investor as he pleases.


COMMENTS & REVIEWS :
It is imperative that Planning for a comfortable and Financially sound Retirement is a Must.
Every investor should be careful and savvy to plan for Retirement. He should take the help of his Financial Advisor in preparing a Solid Retirement Plan.

For those who are short of time or who do not have a Financial Advisor to look after their investments, then this Fund is a "MUST HAVE" and is a good alternative to passive investors.

Similar products in the market like the Templeton India Pension Plan & UTI Retirement Benefit Fund invest upto 40% in equities and though relatively safe may not be able to generate Alpha returns which the TATA RETIREMENT SAVINGS FUND is capable of.

And it is a well know fact that Equities yield higher returns compared with any other investment class.




NOTE :

THE FUND HAS A HUGE EXIT LOAD OF 5% PROGRESSIVELY REDUCING....TO DISCOURAGE EARLY  WITHDRAWAL FROM THE FUND.

THE FUND OFFERS ONLY "GROWTH" OPTIONS SINCE THE FUND AIM IS TO BUILD A HUGE CORPUS FOR YOUR RETIREMENT.



VERDICT :

Definitely better option compared to other options like the PPF, Insurance, etc which are available in the market right now.
I think if you do not have a Financial Advisor, you can go for the Fund.
Otherwise, your Financial Advisor should be able to create a Much better and more Diversified Retirement Portfolio for you.


Go for the Auto Switch Option, but keep a hawk eye on the performance and switch yourself before the "Auto Switch" if your Financial Advisor says so.

Final Verdict, the combo of Diversified Funds + Term Insurance + Real Estate + Gold  is the Best formula for your Retirement Planning

HAPPY RETIREMENT,

SRIKANTH MATRUBAI



Also visit
http://equityadvise.blogspot.com

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BEST FUND FOR RETIREMENT

Rajshekar asked :

Sir I have Index Funds and want to stay invested with them till retirement. What is your view on Franklin Dynamic FOF and UTI Retirement Benefit Fund? Is my decision right. If not, which is best retirement solution mutual fund?

SRIKANTH MATRUBAI says :

Dear Rajshekar,

    At the outset, you have chosen the right asset class (mutual funds) for your retirement planning , and the not the mistake which most people do, by taking up Insurance as their Retirement Kitty.

     Though Index Funds should have been the ideal solution for your retirement, the fact that in India, Diversified Equity Funds have more often than not, beaten the Index Funds handsomely makes them the obvious choice for you. Especially, the fact that you would stay invested for at least 15 years makes the case stronger.

    But it is always a good idea to have a combination of assets to fund your Retirement rather than betting on just one particular kind of scheme to mitigate risks.

     Diversification should be given the highest priority. Your Portfolio should have an ideal mix of Equity, Debt and other asset components. This will of course, be dynamic, and keep changing depending on your age, risk profile and time horizon of your retirement.

   

     When in doubt, follow the golden rule, 100 minus your age should be your equity exposure. That is, if you are 30, then 100-30, i.e, 70 % should be equity exposure and this should gradually reduce as you age.

     It is always advisable, to dispose off your equity funds/real estate(if invested for retirement) about 2-3 years before your actual retirement and switch this amount into Debt. This will not only ensure that you lock in the capital gains you would have made, but also protect your capital from volatility.

Just because you can stay invested for 20 years, does not mean "Invest and Forget". Keep reviewing your investments every 6 months or so to see any noticeable change in any fund's mandate/performance/attribute.

Slowly, as the years progress, switch out from Diversified Equity Fund to Large Cap Funds and then further to Balanced Funds to give better stability to your Portfolio.

While Franklin Dynamic FOF is good, no doubt, the minus point about this fund is that the Fund invests only in In-House Funds. You can know about this fund here_{……….http://goodfundsadvisor.blogspot.com/2010/05/ft-dynamic-fof-auto-timing-markets.html}

The Fund automatically times the market by booking profits when the markets are overvalued and entering the markets when they are cheap. While this strategy helps in locking your profits, it prevents you from reaping compound returns. This Fund is more suited to conservative investors and definitely not you since you already two ‘safety first’ funds.

You can consider UTI Retirement Benefit Fund at a later stage. This Fund is a Balanced Fund with a debt bias. The equity portion is passively managed and is being invested in large-cap stocks. Investors can only expect moderate returns from this segment. The Fund fails to ride the bull markets fully and hence you would lose the compound return equities are expected to provide. Read more about the fund here……http://goodfundadvisor.blogspot.com/2008/12/uti-retirement-benefit-pension-urbp.html

For now, you invest in Good Diversified Equity Funds and take the call to switch to safer large caps and balanced funds (HDFC Prudence, DSPBR Balanced Fund, etc) as  you are near retirement.

Ultimately it all boils down to ideal asset allocation and clear planning. You need to revisit your planning regularly and make adequate changes, if necessary.

You are advised to read ……..^{http://goodfundsadvisor.blogspot.com/2010/02/retire-super-rich.html}

This article will help you on how you should go about planning your retirement.

Best of luck,

Srikanth Matrubai

Also visit http://equityadvise.blogspot.com

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All you wanted to know about Public Provident Fund

A Guest asked :

Can i open a PPF account for me and my minor daughter (i will be the guardian) at the same time? This is just for investment purposes and not for any tax rebates.

REPLY :
Dear Friend, u can open PPF account for you as well as your Daughter. Even if you want to claim Tax benefit you can claim a maximum of  Rs.70K between these 2 accounts.

In fact you can open total 3 PPF accounts.
1 for yourself
1 for your wife
1 for your Daughter
Try to Avoid Investment in PPF.

Start SIP of Rs.1000 P.M.or more in any Equity / Balance Fund like DSPBR Balance Fund/Religare Business Leaders Fund/HDFC Prudence Fund.


Best of luck,
Srikanth  Matrubai


LET US STUDY IN DETAIL ABOUT PPF:

Conservative investor’s first choice has been the Bank Deposits and the Public Provident Fund (PPF). This is due to their guaranteed returns even though these are lower than Mutual funds.
PPF is the most risk free form of investment in India and is quite tax efficient too. And, so, it is not surprising that this is the most popular investment option across the earning class.
Self employed persons who are not covered by Employee Provident Fund should seriously look at PPF as a retirement planning option.

PPF can be opened in any Post Office or with any branch of the State Bank of India and its associates.

The Effective duration of a PPF account is 15 years plus the year of Account opening, so 16 years.


Tax Angle:
1)All investments in PPF (subject a ceiling of Rs.70000) is eligible for Tax Rebate under Sec80c
Contribution to non-earning spouse and/or minor child will be clubbed as your contribution under Sec 64.

2)Though the term of PPF account is 15 years, the contribution made in 16th year (even on the last day) also qualifies for section 80C tax benefit

3)The New Direct Tax Code has recommended that PPF withdrawal on maturity will attract Tax. Not sure, whether this will be recommended. If yes, returns will be drastically affected. But thankfully, the Tax Code has also clarified that only new contributions made on or after the commencement of the code will be subject to tax. So, those withdrawing before 31March 2011 stand to gain.
4) The interest earned in the PPF is exempt from Tax.



Who can invest?
PPF can be opened in your name, your spouse and even children. It can be opened by an individual on behalf of a HUF. Bachelor or married, dependent or otherwise. The only restriction is that total aggregate contribution in all the PPF accounts should not exceed Rs 70,000 in a financial year (i.e. 1st April to 31st March)(The limit of 70k is applicable to individual and minor combined together. Spouse and children who have attained majority are excluded from the 70k limit.

Non Resident Indians may also open a PPF account out of the funds in the applicant's non-resident account in India in banks subject to the following conditions -

The account is marked as non-resident account
All credits therein or debits thereto are made subject to the same regulations as are applicable to non-resident accoun

How to operate?

The maximum you can invest in the PPF in a financial year is fixed at Rs.70000/-. You can contribute as many times you want in a year. The minimum is Rs.500 and the amount need not be fixed and can vary. It must be ensured that your instalments does not exceed 12 in a year.

A minimum of Rs.500 must be compulsory be invested/contributed to keep the PPF account active.


ON MATURITY :
If you do NOT require the PPF money immediately after the mandatory 15 years, you have 3 options :
1)Close the PPF account and withdraw the entire amount
2)Continue the PPF account with fresh subscription. This however, compulsory extends the PPF for another 5 years. Note, you can still have access to 60% of the accout balance at the commencement of each year during this 5 years. And most importantly, you will continue to get 80c benefits.
3) Continue the PPF account without making any further contribution and continue to earn the same of interest. This can be carried for a indefinitely.
If you choose this option, you can withdraw the entire PPF amount either in a lump sum or in installments. However, you’re not allowed more than one withdrawal in a financial year and the balance will continue to earn interest.
4)At the time of withdrawal, if the PPF account holder has become a major, then the proceeds will be deemed as his income and taxed accordingly.







Points to Note :
1) Never forget to appoint a nominee. This applies to all your financial investments, let it be PPF, Mutual Funds, etc.

2).Invest regularly (if possible, monthly) and do not wait for the year end to invest in the PPF.

3) Invest before 5th of every month. Interest is calculated on the lowest balance between the close of the 5th day and the end of the month.

4) Let the money grow. Even though PPF allows Partial Withdrawal from the 7th year and also facility of loan from the 3rd-6th year, try to avoid this unless it is inevitable.

5) A monthly contribution of 5000 in the PPF account for the period of 35 years, will get you 1, 07, 87, 000. Yes, you will become a crorepati.


For calculation of interest and maturity value of PPF click here """""http://www.themoneyquest.com/2009/09/ppf-calculator-interest-maturity-value.html"""

6) PPF ACCOUNT CANNOT BE ATTACHED BY COURTS EVEN IN CASE OF DEFAULT/BANKRUPTCY. Your PPF is always for YOU.

7) Interest on the PPF is currently @ 8%. This is compounded annually. Interest is calculated on the Lowest Balance between the 5th day and the last day of the Calendar month and is credited on 31st March every day.


LOOK AT OTHER OPTIONS TOO:

But, whichever investor you are, if the real returns post inflation is a pittance than it makes little sense to invest in PPFs or FDs.Liquidity is severally affected in PPFs as your money is blocked virtually for 15 years.If you are very conservative investor and do not want even a iota of risk and prepared to forgo returns for sake of safety, you can also look at NSCs as NSCs have a lower lock in period(6 years)  and interest is compounded half yearly increasing the effective yield. However, the BIG factor to note is that NSC returns are taxable. If you are in non-tax bracket and very conservative investor, you can go for NSC rather than PPF.
Also, the interest rate on the PPF is NOT FIXED.

Investing through the time tested way of SIP and being patient ensures you excellent real returns.

12% is a very realistic return that one can expect from Mutual Funds. So, if you instead of PPF invest in Safe/Conservative/Defensive Mutual Funds, then @12%, the difference of your PPF investment of Rs.6000pm,will give a huge positive difference of Rs.8,16,917!!!!!!.

PPF = 2,038,671

Mutual Funds = 2,855,588

Moreover, I have assumed Mutual Fund returns at a very conservative 12%.

The Choice is yours.

Regards,
srikanth matrubai
--

Also visit
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USE THE 8TH WONDER OF THE WORLD

A popular saying goes ‘one should save for the winter while some summer is still left.’ It is quite common for young people to postpone their savings blissfully ignoring the fact of the Fascinating effect of Compounding has on your investment. The World's greatest scientest Albert Einstein said "compound interest is the 8th Wonder of the World". There is no magic formula for this. Compounding is in simple terms, re-investment of income on the prinicipal amount. And again the income on the re-investment of income is also re-invested!!! And thus, the impact obviously will be massive and the more time your money has, the faster it multiplies.





But, the general public tend to ignore this and keep on postponing their investment. Let us take a practical example of my client.



Mr.Bharani Kanth asked :

Sir,



I happy to came across to very useful and informative site.



I am able to settle in my life at the age 30. I am not able make significant investments until now. I need your suggestions in selecting good schemes in the following methods of investment.





1. I want to insure my self upto 30 Lacs using Term Plans.

2. I want to invest in Tax saving mutual funds in SIP mode.

3. Where should I invest if I get any extra money if I get for medium and long term perspectives.



4. I want to save if there is any extra money for short term investments like liquid funds.



Thanks,

vbkanth



SRIKANTH MATRUBAI advised :

Dear Bharani Kanth,

At your age of 30, you should had some kind of investment, at least Term Insurance to start with. Sure, the temptation to postpone and enjoy the money NOW is irrestible, but just see the longer vision. You could have a Wealthy Retirement.

http://goodfundsadvisor.blogspot.com/2009/10/first-job-first-investment.html

You should start your investments as early as possible. The earlier the better. This gives you the advantage of 'compound effect', rightly described as the 8th Wonder of the World. There is no truth to statements like ‘I am too young to start saving’.

COST OF DELAY :

Do you know that if you intend to invest Rs.2000pm and delay the same by just one(1) month, you would be losing Rs.1,90,792!!!! (Calculated @20% for 25 years). And in today's worth of money, you are losing Rs.44,454. Yes, by delaying your Rs.2000 investment by 1 month, you are losing Rs.44,454 in today's worth

http://goodfundsadvisor.blogspot.com/2010/02/retire-super-rich.html

POWER OF TIME :

Do you know, that if you need Rs.1 Crore in say about 20 years, you need to invest Rs.7535 per month.

For the same Rs.1 crore, if you start investing 5 years earlier, you need to invest just Rs.3628 per month. A huge huge saving indeed.

You can use the following calculators ……………..



http://www.moneycontrol.com/planning_desk/magic.php

http://www.bankbazaar.com/finance-tools/compound-interest-calculator.html

WHAT YOU SHOULD DO.......

Apart from start saving now, , of course, he should be very regular in his saving and should have a definite goal.

To begin with, Take Term Insurance to adequately cover your self. An adequate Life Cover means a Minimum of 5 years of Annual Income and normally 10 years of your Annual Income. Suppose your Annual income is 2 lakhs, you should take a Minimum of 10 lakhs Insurance Cover and if possible, increase to 20 lakhs Insurance. It feels to notice that you are more inclined towards Term Insurance which is the Cheapest way of Insuring your life.





Your idea of investing in Tax Saving Mutual funds through sip mode is a very good one and you can find the best funds to invest in my blog posts.

Where you invest your extra money you get depends whether the money if short, medium or long term.

If it is short term, it is always wise to invest in Liquid Funds.

If it is medium term, it would be prudent to invest in Debt Funds or Balanced Funds.

If it is long term, of course, Diversified Equity Funds are the best avenue.





Best of luck ,

Srikanth Matrubai

Also visit

http://equityadvise.blogspot.com

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RETIRE SUPER RICH

RETIRE SUPER RICH

"WHEN YOU HAVE SILVER IN YOUR HAIR, YOU SHOULD HAVE GOLD IN YOUR POCKET".

Retirement is a fact of life and is inevitable.

One day everyone needs to face the 'retirement' question. Are you ready for it?? Is your financial plan working towards it??.

It is equally essential that your Retirement planning not only factors in volatility and income shortages but also factors in Inflation and thus a plan should be such that your cash flow will support your retirement lifestyle.

THE BASICS FIRST :

The Basic Priority should be to have enough 'Emergency Cash' which will cover your immediate needs in case of job loss, etc. It is ideal that your 'Emergency Cash' covers between 3-6 months of your normal expenses.

You also need to plan for your children's education, marriage, home. All this will mean lesser and lesser amount for your retirement savings and that's precisely the reason for starting to save early.

Read this article, it may help you....

http://goodfundsadvisor.blogspot.com/2010/01/4-ways-to-become-wealthy.html

ENOUGH INSURANCE:

Next comes the insurance. Have you covered your life adequately??

Take the Human Life Value calculator to zero in How much Insurance you need.

The Thumb Rule says, if you have kids, you need to have 10 times of your Annual Income as your Insurance Cover.

Insurance is NOT Investment. Hence, avoid ULIPs and go for Term Insurance Policies. Use Insurance as a Security to cover the risk of Dying Young. Insurance is a tool which protects your dependants from financial ruin in your absence.

Along with Life Insurance, you need to have adequate Health Insurance. Your current income and savings may not be enough to sufficiently fund against Medical emergencies. This is where Health Insurance steps in.

HOW MUCH YOU NEED FOR RETIREMENT:

The basic thumb rule says that you need around 75% of your current expenses to maintain the same standard of living (adjusted to inflation). This is just half the picture. The picture is complete only when you guess(that's the only word I could zero in) how many years you will live after retirement.

Again Indian Life Expentancy average is about 75-80 years. So, now you can start planning.

You can also use the Human Life Value Calculator like the http://www.personalfn.com/calc/hlv.html to calculate how much Insurance you need.

You can also use the following Retirement Calculators

http://moneycentral.msn.com/retire/planner.aspx

http://www.bloomberg.com/invest/calculators/retire.html

START EARLY :

Starting saving early ensures that you have the time ti ride out the stock market volatility and thus you are in a position from the '8th Wonder of the World' the "Compound" effect. The younger you are, the fewer are your financial obligations, leaving you with higher surplus to invest.

Do you know, if you delay your SIP investment of Rs.5000/- by just 1 month, over a period of 25 years at 15%, it would cost you (hold your breath), Rs.1,64,595/-!!!!!!.

You would lose Rs.38,350/- in today's worth of money.

Investing for Retirement should start from the day you start earning.

RIGHT ASSET ALLOCATION :

Investing in the right Asset Allocation will also ensure the merits of diversification and mitigating risks but also beating Inflation. Remember there are so many investment avenues eyeing your money, it is sure to confuse even a well informed investor. Gold, Real Estate, Insurance, Mutual Funds, Equities, PPF, NPS the list goes on.

DO NOT KNOW WHAT 'NPS' IS...Click here http://goodfundsadvisor.blogspot.com/2009/05/new-pension-scheme-analysis.html

Indian mentality is swayed by words like 'GUARANTEE' AND 'PENSION'.

Don't Purchase any Pension Plan of any Insurance Company under any Circumstance!! WHY?? These Plans have High Allocation Charges, Admin Charges, Very LOW returns on Annuity. Your Pension is based on your Corpus. With Insurance Plans, your Corpus is limited.

Invest in Good Diversified Mutual Funds which are regularly recommended by me in this blog. With this, you will get a very high Corpus at the time of retirment. After Retirement, you can opt for Systematic Withdrawal Plan (SWP) and receive Pre-determined amount every month.

Equity does not mean just 'equity funds' per se. Invest in different investment style of equity funds which fit into your overall asset allocation strategy. The younger you are, the more equity oriented your investment should be.

You can choose to invest in the funds recommended in this blog regularly.

WATCH THIS VIDEO:

http://www.indyarocks.com/videos/Begging-for-Cake-435705

REVIEW AND RESET ASSET ALLOCATION:

At least once a year, religiously review your entire Investments and Re-balance. Moreover, your needs will change with time and the rebalancing will cover this aspect.

The Worst time for a Market to get into Downturn is when you are about to retire!!! As you near your retirement, it is prudent you change your portfolio from a equity-heavy to debt-heavy portfolio.

AFTER RETIREMENT :

Planning for retirement isn't just about how much money you can accumulate — it also looks at how you use those funds during your retirement.

The 'Accumulation' phase is over. The "Decumulation' phase starts.

Don't overinvest in Bonds and Debt, they may actually fail to beat inflation and your purchasing power erodes substantially in front of your eyes.

You should go for a combination of Balanced Funds, Monthly Income Plans, Fixed Maturity Plans, Arbritrage funds and Large Cap Funds and also look at investing in Senior Citizen Scheme (split them, to avoid penalty in case of early closure., as only will be closed at a time).

Also you could also decide how much cash flow you need now, how much you can postpone, how much you may need after 5, 10 years hence; this amount can be invested in MIPs and Conservative to Moderate Balanced Funds. Strike a balance between safety, liquidity and returns.

You can also look at Reverse Mortgage to augment your retirement income.

THE RIGHT PLAN :

Investing and financial planning needs a lot of time, attention to detail, research and paper work. For someone with a busy schedule, it’s too much trouble. Working with financial adviser is a great way to adequately plan for retirement. They can work with you to create a plan and build a portfolio that fits your needs and goals, and is designed to sustain you for the long haul.

What I have given is not a One size fits all Formula. But this is a starting map for you and your Financial Advisor can take it up from here.

Finally remember, if we fail to plan then we plan to fail

http://goodfundsadvisor.blogspot.com/2009/03/retirement-planning-and-sons-education.html

http://goodfundsadvisor.blogspot.com/2009/01/want-to-have-2-crores-in-10-years.html

Best of luck,

Srikanth Matrubai

Also visit

http://equityadvise.blogspot.com

Read More