In the present days of increasing longevity, economic uncertainties, inflation and family responsibilities, there is a need for every person to plan and provide for his retirement to lead a comfortable and secured family life. The key to thisis habit of regular savings, irrespective of income and its prudent investments in various modes like deposits under interest compounding schemes; equity shares; real estates; precious metals; insurance policies; mutual funds etc. The retirement planning should start from the day, one starts earning.
Powerful tools for wealth creations:
Compounding of interest is the 8th wonder of the world eg Rs 100 invested just for once at 10% per annum for 100 years under compounding scheme will grow to Rs 13 lakh.
Long term investments in assets which appreciate in value like equity shares, real estates and precious metals.
Avoiding unproductive and wasteful expenditure on functions, celebrations and such other events
Getting value for money on purchases.
Keeping yourself gainfully employed or engaging in creative pursuits to earn money.
Contributing at least five per cent of your annual income for social causes dear to your heart for benefit of the underprivileged to get divine support in your endeavours with peace of mind, health, happiness and joy.
Life Insurance Cover
Basically there are only two types of life insurance policies:
Term Plan-Which provides life coverage against risk of death for specified period of time but there is no return on the premium paid.
Endowment Plan – Under this, along with the risk cover of life, return on investments made through premium is available on survival/death.
The various policies issued by LIC and other private life insurance companies, called as “products”, is an innovative mixture and variants of the above referred plans tied-up with unit linked schemes of mutual funds. They have options for accidental death benefits and critical illness as riders against small extra premiums with switch-over facilities. Policies are for different durations targeted for children’s benefit, retirement, illness, education, pension etc. with flexibility in payment of premiums and durations. Do not get mesmerized by big names. Study each plan carefully to suit your specific needs. Contact your Insurance Agent for guidance.
Have suitable insurance policies on your life at minimum cost to cover risk of three possibilities- i.living very long; ii. incapacity during working life and iii. untimely death, to protect your family and secure your children’s future. Ordinarily cover should be 150 times of your monthly expenses if there is no other source of income. This is on the presumption that interest on investment is 8%. For example, if monthly expenses are Rs. 10,000/-, term insurance cover should be Rs.15 lakhs which if invested would give an annual return of Rs.1,20,000/-@8% p.a. interest being the amount that is presently available for family. Structure your policy on the basis of your ability to pay premium regularly without a break. In case you have borrowings for business, or housing loan, adequately cover your life to the extent of loans with appropriate term policy at low rates of premium so that in the event of unfortunate untimely demise, loans could be repaid from the claim proceeds.
Dream Home of Your Own
Buy or construct a residential house of your own. Housing loan facilities at competitive interest rates for various durations are provided by different banks and housing institutions. Apart from emotional satisfaction and appreciation in value of property, interest on loan up to Rs. 1,50,000/- and repayment of principal up to Rs. 2,00,000/- is deductible from your total income for the purpose of calculating income tax.
While budgeting the purchase or construction of thehouse, ascertain your financial capacity to pay Equitable Monthly Instalments (EMI) which covers interest and principal for repayment of housing loan based on reducing balance method. Do not get fooled by low fixed rate on principal amount. Actual interest burden will be very heavy.
Investment in Mutual funds under Systematic Investment Plan (SIP)
Commit yourself with monthly contribution to the Fund of your choice on long term basis. SIP will even out ups and downs in stock markets. When the share price drops, investor gets more units and when share price moves up, he gets less. Cost of purchase averages out. Scope for capital appreciation with benefit of tax concession and exemption for dividends is available.
Try to understand various options available in funds like Equity, Debt, Balanced, Specific sector, Growth oriented, Open ended, Close ended Schemes. Subscribe depending upon your risk-taking ability and needs. Pension Plan Schemes under mutual funds are also available.
Investment in Equity Shares
Regularly invest surplus funds on long term basis in listed equity shares in professionally managed sound companies with good track records, when stock market is down. This offers maximum scope for capital appreciation with increase in markets values of shares and are very liquid. Dividend is tax free.
Short term capital gain tax is fifteen per cent if shares are sold within one year of acquisition; long term capital gain on sale of shares sold after one year is ten percent. However never ever indulge in speculative stock trading on day to day basis. Senior Citizen should invest in equity only if they have surplus funds which they can afford to lose, without sleepless nights.
Public Provident Fund
Open Public Provident Fund account. Holding period is 15 years. Annual contribution up to Rs 1,50,000 is deductible from your taxable income. Interest is compounded at 7.60% per annumand is tax free.
Mediclaim Policy
Have Mediclaim policy to cover hospitalisation expenses since medical expenses are getting increasingly prohibitive day by day. Annual insurance premium up to Rs 25,000 is deductible from your taxable income.
