Time to make some NEW YEAR Resolutions

New Year is the time for celebration, gifts, drink and dance. But it also reminds you to take some resolutions, so that New Year can be better than the one just passed by. So this year let’s make some of the following resolutions to make a better managed financial life. It will help you to reach your financial goals.

1) Contingency Planning: First thing you should do is plan a contingency fund may be 3-6 months of your expenses, depending on kind of a job or business you are in. Always create and maintain an emergency fund. This is the only source which you can access in case of emergency may be medical or job loss.

2) Prioritise your Debts: Understand not all debt is same. Make list of all your debt and try to get rid of the ones against which you are paying highest rate of interest. It doesn’t make sense to invest your money in an Fd or Mutual fund when you are paying 30% interest on your credit card due.

3) Budgeting: If you haven’t make a budget then it is the time you should start making one. Budgeting help you to plan your bigger expenses and help you avoid impulsive buying.

4) Know your goals: Our tagline is “Aao Sapno Ko TARIKH De” which means first list down your dreams and then put a date by when or in which year I want to achieve it. To start any planning we need to list down what all we want to achieve. So this new year just make a list of financial goals you wish to achieve. Then break it into 2 parts i.e need and want. Needs are the one which in any circumstances you have to achieve e.g. your child’s education, Daughter’s marriage or your retirement. The balance left out will be your wants e.g. owning a vacation home, foreign trip every year etc. From the definition it is clear your needs will be given first priority and wants after that.

5) Clean up: Every investor investment bucket is filled up with the products advised by a friend, neighbor or a relative. Just review them whether they still holds some value. There are lot of better alternative products are available especially in mutual fund space. Which are transparent as well as cost and tax efficient. So close down all such products and switch it to better alternative. May be you need to pay some penalty today but in long term it can add multiples of such penalties to your wealth.

6) Know where you money goes: Gaining control of your financial situation and using money to help you reach your goals is possible, but first you must recognize where your money goes. Evaluate your habits. Start by jotting down everything you think you spend money on during a one-month period. Within the expenses differentiate between discretionary (e.g Eating our, Watching movies, replacing gadgets more frequently etc) and non discretionary (e.g. Electricity bill, Rent, Grocery etc). Start cutting down on discretionary expenses.

7) Avoid tips or offers giving assured, fixed and high returns: Remember every extra % of return offered over and above market return comes with that extra % of risk, so try to shy away from the schemes which doubles your money in very short span. Also check investments products you are investing in are regulated by govt. Appointed regulator and avoid ponzy or tip based investment. Your friend or relative might have recommended that but it is you who loses money when it bursts.

8) Consult a Financial Advisor: It is always beneficial in long run to seek professional help. In short run it might look like a cost but over a period of time, it would help you to avoid unnecessary investments. He will guide and a hand holds you during your financial journey and helps you reach your goals comfortably.

9) Do some Charity : Lastly do not forget to do some charity, help the people who are less fortunate. Remember we are lucky that we have access to the things which atleast 50% of the population don’t have.

So let’s create a bright future for ourselves and for the country. Wish you a very Happy and Prosperous New Year.

Increase your Happiness index together with wealth

Had opportunity to watch a fantastic movie this weekend named "Lunch Box" there were lot of good things about the movie. But I would like to share just one of the term they referred to i.e Gross National Happiness.

Every country in the world is running towards improving their Gross National product. But what if we get together and concentrate on improving Gross National Happiness. Interesting to know there is a country seating in our neighbor having population half of my city i.e Vadodara has done that. I am talking of Bhutan. YES Bhutan.

Gross national happiness resides in the belief  that the key to happiness is to be found, once basic material needs have been met, in emotional and spiritual growth. The concept of Gross National Happiness accordingly rejects the nation that there is a direct and unambiguous relationship between wealth and happiness. If such a relationship existed, it would follow that those in the richest countries should be the happiest in the world. We know that this is not the case. This marginal increase has also been accompanied by the growth of many social problems as well as such phenomena as stress-related diseases as well as suicides, surely the very antithesis of happiness. 

Bhutan seeks to establish a happy society, where people are safe, where everyone is guaranteed a decent livelihood, and where people enjoy universal access to good education and health care. It is a society where there is no pollution or violation of the environment, where there is no aggression and war, where inequalities do not exist, and where cultural values get strengthened everyday. A happy society is not a fatalistic society, but is built on hope and aspirations. It is also a more equal and compassionate society, where sharing and contentment come out of a positive sense of community feeling. A happy society is one where people enjoy freedoms, where there is no oppression, where art, music, dance, drama, and culture flourish.

We all are running without knowing where we need to reach. Specially our leaders they have never set and looked at how much money they would require to lead a most luxurious life which includes inheriting big chunk for their next generation. If they would do that exercise corruption figure will get down to some hundred crores from lakhs of crores.

Financial planner can contribute a lot to increase your level of happiness by making you aware about your future needs and goals. They lay down a plan to achieve your goals according to your risk profile, they secure your family's future. A clear vision, backed by definite plan, gives you a tremendous feeling of confidence and personal power. When you are confident about future financially, you become more happier and less greedy, which helps in giving quality time to family. I am of the belief that if we are happy and satisfied we make people around us more happier and a reason for happier society. We avoid doing unethical work.

Just think of the day when you got good bonus or an excellent salary hike. What is the first thing you do its share that happiness with your family you wont mind giving a raise to your housemaid or your sweeper after that. A chain of happiness starts. Why we need to have reasons like bonus and raise to be happy. They are temporary, start looking for permanent reasons.

Just a advise to raise your happiness index and together with that of countries Gross happiness index consult your financial planner and plan you future.

Very relevant speech forwarded to me by one of my client of  Mr.Ratan Tata at Symbiosis.

Quote

"Don't just have career or academic goals.Set goals to give you a balanced,successful life.Balanced means ensuring your health, relationship,mental peace are all in good order. 

There is no point of getting a promotion on the day of breakup,

There is no fun in driving a car if your back hurts,

Shopping is not enjoyable if your mind is full of tensions.

Don't take life seriously, Life is not meant to be taken seriously, as we are temporary here.

We are like prepaid card with limited validity. If we are lucky, we may last for another 50 years and 50 years is just 2500 weekends. Do we really need to get so worked up?...it's OK, Bunk few classes, score low couple of papers, take leave from work, fall in love. fight a little with your spouse....it's ok... 

We are people not programmed devices...! "Don't be serious enjoy life as it comes" Unquote.     

To remain happy is in our hand and don't allow external factors to affect it. Be happy and try to make people happier around you. Donate generously to less privileged, help others, take good care of environment.

Financial Mathematics - "Itni Shiddat se maine tujhe pane ki koshish ki hai, ki har zarre ne mujhe tumse milane ki saazish ki hai".

Very rightly said that "Journey of thousand miles starts with a single step".Same way to achieve big goals in life the first step is to start with basic i.e.decide your goals/dreams or aspirations in life.

Just list down whatever you think without thinking ki "Yeh kaha se hoga". (Had we ever thought that people would be booking tickets to travel mars).

Many a times investor tells me it doesn't make sense to plan, as I don't have any surplus funds. I ask them forget what you have atleast make a list of goals you want to achieve and as soon as you make that list and refer it on regular basis, your goals themselves finds way for required investment.

You will automatically cut down on discretionary or unnecessary expenses. It will act as an alarm "That if you buy the things which you don't need today, may be tomorrow you will not be able to buy the things you need". It will motivate you to work more efficiently to grow in your career or business.For sure, the passion and better planning will make you reach your goals Like SRK says "Itni Shiddat se maine tujhe pane ki koshish ki hai, ki har zarre ne mujhe tumse milane ki saazish ki hai".

After first step of deciding goals, it requires you to put time left and amount required for it.

Today we will learn how to inflate present goals cost to future value, so that we don't end up receiving the value which do not meet the requirement as briefed in my earlier blog:http://www.rajtalati-abminvestment.blogspot.in/2014/01/calculating-rate-of-returns-before.html#links. 

In addition to that we will also learn how to calculate annual investment required to reach that value :

Let's take an example of Mr.Sapnelal who wish to plan for marriage of her daughter Ms.Dreamgirl 18 year hence. Present exps. according to kind of wedding he wish to plan for is Rs.800000.00. He expects inflation during this period will be around 7%.

First of all open an excel sheet and go on "insert" select "Function" and in "window search for function" type "FV".Following window will open :

Inputs:

Rate - It is the rate of return/inflation considered in our case it would be 7%

NPER is no. of period - In our case it is 18 years.

PMT Payment - It asks for Periodic payments you wish to make for the goal. As we want to learn how to calculate Periodic payment in next step we will keep this as blank.

PV - This is the present value of goal in our case it is Rs.800000.00.As it shows investment (Money going from our pocket) a  -ve sign to put in front of it.

Let's insert the data in above field. The result will reflect at the bottom (above the Blue highlighted line Help on this function") under Formula result as follows :

The amount required after 18 years would be Rs.2703945.82.

Now,let's see how to calculate annual amount required to be invested or periodic investment required to achieve goal of Ms. Dreamgirl's marriage.

Mr.Sapnelal risk profile is aggressive and as the period of investment is also longer he wishes to make this entire annual contribution to equity and he expects equity to give him atleast 15% return on his investment.

So. let's calculate the per annum amount required to be invested.

First of all open an excel sheet and go on "insert" select "Function" and in "window search for function" type "PMT".Following window will open :

As detailed above put the data in fileds as follows :

Rate - As Sapnelal wishes to invest the amount in equity and expects to get a return of 15%. Enter 15% against Rate.

NPER - Enter 18 as maturity is required after 18 years for Dreamgirl's marriage

PV - Enter the lumpsum amount if you wish to invest initially together with the annual amount. In our case its nil so will keep it blank.

FV - From the first calculation we got this amount which we want to achieve i.e. 2703945.82.

Type - If you wish to make contribution at start of the year then put 1 and in case of end put 0.In our case it at the beginning of the year so enter 1.

After inserting all the above details result i.e. annual requirement will reflect as follows :

So the required amount is Rs.31004.35 it is showing as negative because it is going out of our pocket or we need to make this investment.

The best part is just by changing the figures in rate you can see the value of annual investment required. If you wish to achieve your goal by investing in a bank FD and expects to get a return of 9%. Your annual investment required will become Rs.60063..04.

So plan your investment in better way irrespective of what your name means- So being Mr.Sapnelal, enjoy marriage of daughter Dreamgirl the way it was planned.

Shop - SMART way this Festive season

Festival time is the most delightful period of the year.It recharges you as a person, every individual  in any corner of the world try to be with his family and spend quality time with them. It is time of having  fun, shopping, socializing, Gifting and lot more....

Most of the Indian festival irrespective of religion fall in the period  August to December - Whether it is Eid, Raksha Bandhan, Parsi New Year, Diwali, Muharram, Gurunanak Jayanti, Christmas or New Year etc..

But while celebrating festivals and to enjoy its charm to the fullest we miss on the budgeting part resulting in the trap of overspending. By taking some simple steps we can save ourselves from impulsive buying and mouth watering offers.

1) Contribute for Festival expenses in advance - While planning for our expenses we break our expenses evenly for the whole year, whereas there are certain months when our expenses are lesser as compared to other months. Just make a list of such months and park surplus of this month in a liquid fund of MF or make an FD for equivalent period. We can also start an SIP in a liquid fund or open an Recurring deposit with Bank whose maturities matches with festival period.

2) Budget your Expenses - Budgeting can help you in avoiding impulsive buying. Hence prepare a list of all the shopping you wish to make during festivals. Also list out separately how much you would be spending in eating out, on Gifting, movies and shopping.

3) Delay Bigger Purchases - I remember during last diwali there was a combo offer available for purchase of Juice maker and Coffee maker at an attractive price. My wife couldn't resist and she bought it. I remember we hardly used it for a week. 

Festival is the time for big discounts, freebies and offers. Delay your purchase by 3-4 days before making any bigger purchase which is not planned and suddenly you find it available at very good bargain. It will help you to come out of frame of mind of offers and discounts and give you time to think logically that really you need it/what is the necessity of buying right now or don't need it immediately.

4) Avoid Credit Cards - Try to make payments in cash, as at the end of the day you know how much you spent. The more you spend you have lesser surplus available. Credit card is a very comfortable and safer way of making payments while shopping, but it never allow you to feel the pain of overspending. Actually pain comes when the payment is due. Have you ever realised that we always spend more while purchasing with credit card as compared to cash payment.

5) Say NO to personal Loans - Personal loans are the most expensive loans avoid it.

6) Realise nothing is Free - Realise and accept that in this world nothing comes for free.

7) Plan your investments - Always plan and link your investments to goals, which will help you in reminding during impulsive buying that you will be compromising on your child's education or her marriage or your retirement.

Just follow above simple steps and have a great Festival time.

The author of this article is Raj Talati a  CERTIFIED FINANCIAL PLANNER^CM at ABM Investment.

Do IT Yourself (DIY)- Think Again

With RBI's recent measures to control Rupee depreciation and Mr.Bernanke's announcement on pulling the brakes on its stimulus programme has caught duration fund managers as well  investor on the wrong foot.

Untill last month every major financial daily propogated the wisdom of putting tons of money in "safe" debt funds. Banks were also happy to tie up with mutual funds to propogate the safety of debt funds. All they had to do is to convince investors that the RBI's move in the next monetary policy was a rate cut. When equity was facing redemption pressure, inflows to debt touched record highs.

Logically, RBI should have cut down interest rate to support growth when WPI has gone down substantially. But future has habit to defy logics in an economy.

As an investor we can't control Fiscal Deficit, Current account deficit, WPI, CPI , Interest rates, GDP,Real Estate prices, Gold prices, Forex movement, or for that matter Mr.Bernanke or Mr.Subbarao,but for sure we can have control over our investment and our needs.

It is said "In investment you can make more returns by knowing what not do instead of what to do" and you need someone qualified to advise you on what not to do.

Recently regulator allowed investor to invest in direct mode by bypassing the advisor, but situation like this justifies worth of professional advise. like they say "Professional advise comes at a price without it you pay a much higher price." 

There was a time when limited investment options were available but now it comes with lots of options and now also in lot of colors (With SEBI's latest regulation of color coding of the funds) and you never know the fund with color Blue which denotes low risk can give you negative returns to the extent of 6-8% in one month.Time has gone of taking decision on the basis of your friend or neighbors advise. 

Like Warren Buffet says "Investment is the only place that people ride to in a Rolls Royce to get advice from those who take the subway."

Need of professional is always proved in adverse situation. A Financial advisor can help you in assessing your needs and advises investment depending on your need and risk profile instead of running behind the performance chart shown by news paper or some research sights.

So next time think twice before making investment on DIY basis.

"SAFETY"- No such word in Financial Dictionary

As per dictionary.com meaning of safety defined as: the state of being safe; freedom from the occurrence or risk of injury, danger, or loss.

On Googling for meaning of SAFETY in financial terms, I could not find a single dictionary which explains - safety. I did found words like : safe harbour, safety net, safe heaven etc etc...and the meaning of any of them didn't matched with dictionary meaning.

Investopedia.com do define "safe assets" as 

"Assets which, in and of themselves, do not carry a high likelihood of lawsuit risk. Mere ownership of this type of asset does not expose the asset owner to a significant risk of litigation.

Assets such as stocks, mutual funds, bonds, bank accounts and your personal residence are examples of safe assets." Which is totally different from what Indian investor thinks.

The recent development of Cyprus prompted me to search for meaning of "SAFETY in financial world".

First let me take you through some facts about pattern of Investment of Indian investor - As per the RBI's 2011-12 annual report bank FD's or contractual savings(Small Savings Scheme, LIC) constitutes almost 85% of total financial savings where as currency is almost 10% leaving 4-5% for Equities. 

The obvious reason for such a high allocation to FD is SAFETY. We perceive word safety as "To get back the capital and Interest on maturity date without any volatility". That might be the reason we rely mostly on all the government institutions like : Post offices, LIC, PSU Banks.

But, fallout of some of the biggest bank and government institution in U.S and Europe are the best example that even Govt. institutions are riskier at times and we may end up losing part of our money. Why to go to U.S we have example of our own government sponsored UTI US'64 scheme wherein government did paid back money of investors but with a delay of 6 years and that too in the form of 6% tax free bonds.(Just think of condition of a father who had invested money for his son's education or daughter's marriage)

Regarding Guarantee for repayment of Bank FD, RBI portal says "The deposits kept in different branches of a bank are aggregated for the purpose of insurance cover and a maximum amount upto Rupees one lakh is paid."  subject to bank have paid premium to deposit insurance and credit guarantee corporation .

Now, Let's understand what has happened in Cyprus, just to bail out economy "Government has imposed tax on bank deposits in Cyprus, they are taxed @6.75% on their  deposits less then EURO 100000.00 and @9.75 for more then that ".In simple terms one fine day suddenly government reduced your bank balances as well as FD value by 6.75%- 9.75%. Just think how would you feel if you woke up in the morning and found that government has decided to take away 6.75% of your money".

Even in case of India it is happening that our FD are reduced by almost 4-5% every year. Let me explain you how : The current CPI inflation rate is about 10.50% and Tax free FD rates of SBI is 5.78% (8.50% less 32% Tax rate). So the cost of goods which I can purchase today for Rs.100 becomes Rs.110.50 (CPI@10.50%) at the end of year whereas my FD value net of tax comes to Rs.106.00. So to buy the same goods I need to add Rs.4.50 to my FD amount, don't you think even we are paying a tax of 4%-5% year on year on our bank FD.

The purpose of highlighting above facts is not that we should not invest in FD's but we need to understand that there is no such word as safe asset class. The fall of 15% in Gold in last 3 months has proved even the safest asset class can be volatile at times.

We are now a part of the global investor community. The purpose of an investor seating in other part of the world is to make profit from his investment. Wherever and whenever he finds an opportunity he will buy into it and sells out in case of uncertainty. He is not concerned with asset class i.e. Debt, Equity,Real Estate or Commodities like Gold,Silver,Oil,Copper etc...

So it is mere foolishness to think that price of your investment in any asset class can grow perpetually or safe from all risks.

The only way to save yourself from getting in trap of any asset class is to follow a proper asset allocation strategy (Also read ;key-to-wealth-creation-asset-allocation.)

looking at above facts we can either act like an Ostrich who hides his face in the sand when attacked by a predator (assuming that if you can't see it , then anyone else also don't see you) or can take informed decision of how much amount to be allocated to FD,Gold, Real Estate or Equity so that we or our family do not need to compromise on future Dreams or Goals.

Consult your financial planner to advise you on proper asset allocation.

Unravelling NCD's (Non Convertible Debentures)

We as an investor are always tempted by higher returns, specially in a time when interest rates offered on bank FD have move down in the range of 8.5 -9 % without knowing risk associated with it.

Another such wave of offering higher returns on your investment is about to come in the form of NCD's or Non Convertible Debenture. But as we are going to invest our hard earned money we need to know nitty gritty of the instrument.

Let's understand what NCD's are:

Whenever a corporate wants to raise money from public they issue a debt paper which is for a specified period and pays a fixed interest this debt paper are known as debentures . Debentures can be convertible as well as Non convertible.

Convertible Debentures : The Debentures which pays interest at fixed rate and on maturity date are converted to Shares of the company are convertible debentures.

Non Convertible Debentures : The Debentures which pays interest at fixed rate and on maturity returns the  capital amount are NCD.

Even NCD's can be of 2 types :

• Secured Debentures : As an security it is backed by asset of the company and if it fails to pay, the investor holding the debentures can claim it through liquidation of the assets.
• Unsecured Debentures : Contrary to above it is not backed by any security in case company defaults the amount would be paid only if any amount left after paying off for the secured creditors.

Features of NCD

NCD's normally works more or less like company deposits. One advantage of NCD is they are listed on stock exchange and theoretically speaking they provide liquidity.However, there is no active market for NCDs on the wholesale debt market segment of the stock exchanges and their liquidity is low. You might not be able to find a buyer for your NCDs if their trade volumes on bourses are insignificant.

Any Indian company can raise money through NCDs if it has a tangible net worth of at least Rs 4 crore and has been sanctioned loans by banks or financial institutions which is classified as 'standard asset' and not as bad debt.

Companies seeking to raise money through NCDs have to get their issue rated by agencies such as CRISIL, ICRA, CARE and Fitch Ratings. NCDs with higher ratings are safer as this means the issuer has the ability to service its debt on time and carries lower default risk.But the rating provided is at the time of issuance and may change during the tenure.

Interest rates on NCD

Normally NCD provides a higher interest rate then the market or Bank FD and comes with long tenure. Best suited for individuals who have  lower risk profile to build their retirement corpus and also for retirees during low interest rate scenario. NCD's come with lot of interest payment options viz; monthly, quarterly, annually and Cumulative. 

Interest rates also depends on rating of the issue. Lower rating means higher interest rate and vice versa.

Taxation

Interest on NCD do not attract TDS, but interest is taxable and is added to income for that year.

Capital Gain :

NCD's are listed on stock exchange and if sold on exchange it is taxed like debt fund. If sold before 1 year,  profit will be added to income and taxed at per tax slab. But any profit made selling after 1 year and before maturity would be taxed as long term capital gain. The applicable tax rate is 10.30% without indexation.

Risk involved 

NCD has some inherent risk. Investor need to check companies financial and end uses of the funds. Checking for rating can help a bit. 

Many a times we have seen that although the issue is secured but is backed by assets which may fluctuate in valuation. Like if we take case of Gold finance company mainly engaged in finance against Gold, comes with  secured NCD's backed by asset (Gold) as guarantee. 

As we know that gold has also become an speculative asset and if there is any major fall in prices of Gold. The company might not be able to recover its loan, due to which loan default rate might increase. It may result in default of NCD payment. Investors would not be able to recover their NCD value inspite of being secured as even after liquidation of asset i.e gold the amount recovered would be much less.

Please consult your financial advisor before investing in any such instrument.

Be a Lazy Investor - Saving Interest deregulated

Last week RBI came out with one of the historic decision in Indian banking history by freeing the savings bank rate. It did came out like a Diwali gift from RBI governor.I think every bank account holder would feel delighted with this decision.

Within hours of the Mr.Subbarao's announcement two of the private banks came with an advertisement about increase in Saving interest rate of full page in leading national news paper.

No doubt it will create a big hole in the profitability of some of the big banks balance sheet. But, will it really benefit account holders?

Let us evaluate:

If your average balance in a saving account remain at a level of Rs.1.00 Lac, you would get richer by Rs.166 per month and for balance more then Rs.1.00 Lac additional 50 basis points.

I think for an Lazy investor who holds such big balances in his savings account is not bothered of getting Rs.166.00 or Rs.500 per month. If he would have been really concerned might have shifted his money to Liquid funds offered by mutual funds.

These are the funds favorite with corporates but retail investor were never keen to invest in it. Liquid funds can easily fill in the gap between saving bank account and bank FD's. It gives you return more than saving account (Presently in the range of 8.5 - 9%). The only difference is you can access funds at 1 day notice i.e liquidity is available to you in 1 day instead of instantly in case of Savings account.

From safety perspective although it also bears the tag line "Mutual fund investment are subject to Market read offer document.....". But history of the fund prooves that it is as safe as your savings account the NAV of a liquid fund has never been negative for a single day in its history.(As it invest in the papers of maturiy less then 90 days)

So, as an investor if you are looking at the better returns then Saving bank should shift your surplusses to Liquid funds instead of settling at 4 or 6% of saving account returns. Additional returns can take care of your monthly telephone bills and LPG cost or a weekend with your family.

RETIREMENT - Aish or Without Cash

As an Indian we feel really proud to be one of the youngest country. But, there was time in 80's and 90's when the biggest worry for our country was rising population and because of that reason we started the campaign "Hum do Hamare Do". Today the same worry has become one of the biggest boon for our economy. 

Thanks to one of the report made by Goldmann Sachs way back in 2002 which brought this fact to limelight and resulted in biggest rally in the history of Indian equity market.

India has more than 50% of its population below the age of 25 and more than 65% hovers below the age of 35. It is expected that, in 2020, the average age of an Indian will be 29 years, compared to 37  for China and 48 for Japan.(source : wikipedia.org)

Population by Age and Sex for India
Year	Age	Both Sexes Population	Male Population	Female Population
2011	Total	1189172906	617039156	572133750
2011	0-4	118325346	62740231	55585115
2011	5-9	117592252	62539569	55052683
2011	10-14	116948795	62170835	54777960
2011	15-19	112247754	59507362	52740392
2011	20-24	105137174	55103535	50033639
2011	25-29	99548997	51787772	47761225
2011	30-34	93102734	48164565	44938169
2011	35-39	86435208	44407222	42027986
2011	40-44	76764881	39235679	37529202
2011	45-49	64989219	33146269	31842950
2011	50-54	54272103	27595085	26677018
2011	55-59	44170733	22361010	21809723

 SOURCE : U.S.Census Bureau, International Data Base.

There is no doubt India is going to be one of the strongest economy inspite of all the global, political or domestic factors.

But while looking at sparkling and shiny picture we forget there is one more fact hidden in the above data, From the above data it is clear that in next 25-30 years almost 50% of our present population would enter retirement.

For an average human being retirement age means to depend rest of his life on retirement corpus created during working span of his life. Just to understand effect of Inflation on our household exps.(inflation@8%) The cost  of present household exps. valued at Rs.25000 per month would become Rs.251000 PER MONTH after 30 years and would be Rs.1175000 PER MONTH  i.e 1.41 CRORE PER YEAR after 50 years. It really seems funny to talk of 50 years. But it is the fact of life for youngsters who are in 25-40 age group and should be eye opener for them to reconsider the amount of funds they might require in retirement age.

 

Future value of Exps. @8% Inflation rate

Post Independence the average age of an Indian was in the range of 50-55 years. But due to improved medical facilities and newer technologies it has gone up to 75-80 years(in urban India) and don't be surprised if it moves up to 95-100 years in next 30 years.

We need to seriously consider our retirement planning at an early age of our carrier or as soon as we realise its need. The biggest factor which can help us in accumulating such a bigger corpus is power of compounding and proper asset allocation.

Illustration: Let us consider that Shahid Kapoor is an young, dynamic IT employee whose age is 30 year. He plans to retire at age of 58 and he considers his expected life to be 90 years. His present household expense is Rs.25000/month and considers it to be same even after the retirement age. He feels inflation pre and post retirement to be 8%.

Now, considering above his house hold expenses at the age of 58 would be Rs.2588132.00/Year and if he manages to get return 2% more then the inflation rate post retirement i.e 10% (Net of Tax). He would need to have a retirement corpus of 6.32 Crore.

Particulars	Amount
Total Monthly Expenses	25,000
Total Annual Expenses	300,000
Inflation	8.00%
Current Age	30
Retirement Age	58
Life Expectancy	90
No. of Years for Retirement	28
Expenses in the First Year of Retirement	2,588,132
Retirement years (life expectancy-retirement age)	32
Inflation during Retirement Years	8.00%
Investment Returns on Retirement Corpus	10.00%
Net Returns	1.85%
Retirement Corpus Required	63,216,858
Deficit (Corpus Required-Assets Utilized)	63,216,858
No of Years for Retirement	28
Expected Investment Returns	15.00%
Lumpsum Funding Required (If Available)	1,262,680
Monthly Investments Required	12,352

It seems to be impossible to accumulate the above amount during the working tenure of 28 years for an average person. But it requires much lesser then the EMI you pay for your Sedan (car) , expecting a return of 15% you require to invest just Rs.12352.00 per month. So delay your purchase of car or house by 3 or 5 years and safeguard your retirement.

As there is no social security system available for citizen of India we need to plan and protect our retirement life ourselves. Many of Central or State government or employees Covered under EPF feel relaxed that their retirement would be taken care of by there EPF account. Just showing below the value of EPF account of Mr.Shahid Kapoor present salary Rs.35000/Month and expects to appreciate 10% YOY.

Sr. No	Particulars	Values
1	Current Age	30
2	Retirement Age	58
3	Monthly Salary (Basic+DA)	35,000
4	Increase in Salary	10.00%
5	Contribution from Salary	12.00%
6	Current EPF Balance	0
7	Rate of Interest	8.50%
8	Value at Retirement	33,559,758

So, the deficit for retirement fund is huge even after considering the EPF maturity.

Although modern medical science has increased the life expectancy but has increased medical expenses substantially.What if someone meets up with some of the critical illness or might result him to be bedridden during his working tenure or Retirement age.

Now a days it's easily noticeable that in every household there is atleast one of the family member who is taking medicines on daily basis.That too 2-5 pills a day.

It is the high time that we should give priority to retirement planning , otherwise it can happen that today we are moving in a luxurious car or living in a bigger house but after retirement might need to move to a smaller house or settle for an economy car or even need to cut down on statutory house hold expenses.

Remember, if planned properly retirement life can be the golden period of our life as these is the only period when we would have ample time and if have sufficient money can do everything which we couldn't do during working span due to job, aspirations or family commitments.

SO PLAN YOUR RETIREMENT TODAY ONLY AND HAVE A GREAT LIFE AHEAD