Saturday, May 30, 2015

Ensure chicken is not pecking up your investments...

There were Two grains lying side by side on the fertile soil. 

The first grain said: “I want to grow up! I want to put down roots deep into the ground and sprout from the ground. I dream to blossom in delicate buds and proclaim the coming of spring. I want to feel the warm rays of sun and the dew drops on my petals!”.

This grain grew up and became a beautiful flower.

The second grain said: “I’m afraid. If I put down my roots into the ground, I don’t know what they will face there. If I grow tender stems, they can be damaged by wind. If I grow flowers, they may be disrupted. So I’d rather wait for the safer time.

Thus the second grain was waiting, until the chicken that passed by did not peck it.

I found similar is the situation of Indian investor they are always fearful about their investments in equity. What would happen if market will go down, what if GDP growth would not be as expected, what if inflation rises, what if I would loose my hard earned money, why should I pay fees to advisor, why should invest in Mutual funds.

Now we are having almost 22 years of history of mutual fund investment, not a single fund has not given return lesser then market, inspite of seeing all the worst a economy can face in this 22 years. We have seen a government for 13 days, a communist supported 3rd front government, Asian Financial crisis,Kargil war, Sanctions imposed on us due to nuclear test, Tech Bubble,9/11 attack, Ketan Parekh scam, terrorist attacks of parliament and of Mumbai, Corruption/scams, Sub prime crisis and lot more.

Inspite, of that there are funds which has given annualised returns to the tune of 24%, which even god of investment Warren Buffet have not been able to generate consistently for such a long period. 

Which means if someone would have invested Rs.100000 in the fund 20 years back that would have been worth 80.00 Lakhs, i.e multiplied his money 80 times or have made an SIP of Rs.5000 (Total Investment Rs.11.80 Lakhs) per month would have transformed into Rs.2.51 Crores.

So let us try to reap the benefit of equity investments and not become like other seed waiting for inflation and taxes in the form of chicken to peck it.

Saturday, May 23, 2015

How much reliable EPF/PPF for Retirement Funding???

I have come across lot of investors who lives in an fool's paradise as far as there retirement planning is concerned. They purely rely on EPF or PPF assuming that they would have a happy and comfortable retirement.

I did the same for one of my investor Mr.Nikhilesh, who is just 28 years of age and works with a IT company. He assumes a salary growth rate of 10% every year. On the basis of it, his EPF corpus works out as follows :

Nikhilesh is married and blessed with a daughter. Let's find out what would be his retirement expenses and his corpus requirement his present monthly expense is Rs.18000.00. We have not considered any of his intermediate goals considering that it will be taken care by his savings or some extra ordinary jump in the salary during his most productive phase.

So his EPF corpus at the time of retirement would be Rs.3.15 Crore and whereas his required corpus to maintain similar lifestyle would be Rs.5.22 Crore. So there would be a gap of Rs.2.07 Crore. Remember we have not considered any medical expense and emergencies.

To accumulate the above amount he would be required to contribute additional Rs.1.50 Lacs per annum (@8.7% for 30 Years). 

The PPF investors are worst as in above case Nikhilesh would be investing 24% of his basic salary (12% own contribution and 12% employer's contribution) whereas in PPF maximu limit you can invest is Rs.1.50 Lacs which will work out to be 2.10 Crore that too if entire limit is exhausted from day 1 of Rs.1.50 lacs. So his shortfall would be Rs.3.12 Crore.

I know Salary, EPF corpus, Expenses  and Salary growth rate would vary from individual to individual, but purpose is to demonstrate and make investor aware that only EPF or PPF corpus will not suffice their retirement needs.So plan your retirement much before you hit it to make it the best period of your life.

It is always advisable to calculate the retirement corpus required either yourself or may be through a professional financial planner and try achieving that instead of playing blind. If