speaker: ca. utsav sahgal geriatrics & investments
TRANSCRIPT
Speaker: CA. Utsav Sahgal
GERIATRICS &
INVESTMENTS
Defining “INVESTMENT”
• The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit is “investment”.
• Investment can be in the form of stocks, bonds, options, futures, FOREX, mutual funds, banking instruments, real estate (among many other things), in unorganized business or starting your own business.
A “REAL” INVESTOR’S ATTITUDE
• Investment is NOT GAMBLING.
• A "real" investor does not simply throw money at any random investment
• Commit capital only when there is a reasonable expectation of profit. Yes, there still is risk, and there are no guarantees, but investing is more than simply hoping Lady Luck is on your side.
For the GeriatricsTRICK IS TO START EARLY !!
• Financial planning for the old age has to start NOW.
• Money needs time to grow. • To demonstrate, two friends A & B aged 25 years
have `15,000 to invest today. A invests this today @ 5.5 % compound interest whereas B invests the same amount after 10 years @ 5.5 %.
• At the age of 50, A would have made `57,200 and B only `33,487.
COMPOUNDING – The Simple Fundamental of Any Investment
• Albert Einstein called compound interest "the greatest mathematical discovery of all time". It’s true partly because, unlike the trigonometry or calculus we studied back in high school, compounding can be applied to everyday life.
• The wonder of compounding (also called "compound interest") transforms your working money into a state-of-the-art, highly powerful income-generating tool.
• Every investment option’s growth is based on the principle of compounding more than the principle of demand - supply.
BASIS OF MAKING INVESTMENT
• Investment can be measured in several parameters such as, time, liquidity, quantum, risk, return, tax incidence and legality.
• When talking from the point of view of geriatrics mainly three things matter: TIME, RISK AND LIQUIDITY
Investment Factors at different stages of Life
Old Age Liquidity/ Regular Income
Return / Capital Protection
Tax / Quantum
Young Age Time / Risk
THE ART OF DESIGNING PORTFOLIO AND PLANNING DIVERSIFICATION
• A portfolio is a combination of different investment assets mixed and matched for the purpose of achieving an investor's goal(s).
• Portfolios can be aggressive, moderately aggressive or conservative.
Portfolio Designing with Priority Perspective
• High Priority Agenda(Such as long term healthpool, marriage expensespool, etc.)
• Low Priority Agenda(Deferrable expenses such as travelling pool, buying luxury items, etc.)
Fixed income generating funds
with least risk and time bound
Dynamic funds with high risk and
high returns
How to assess the Right Investment Mix
• Determine your asset-mix• Keep a tab on your lifestyle expenses• Put a plan in place for new incomes and
windfall • Determine specific portfolio funds for specific
purposes• Be detached and objective• Don’t time the market
Main Sources of Income at Geriatric Stage
• Pension Income Investment
• Income from Interest and Dividend Income • Rental Income Type
• Business Income as profit Non-
• Professional Receipts as Investment
a consultant/advisor Income Type
Models of investment considering tax rate, risk exposure and return rate
• LONG TERM; NO TAX AT MATURITY Equity/Equity Mutual Funds
(10 per cent is the tax you pay on long-term capital gains made from selling fixed-income securities, irrespective
of the tax bracket you are in)
Balanced Funds/Equity Oriented Hybrid Funds(Upto one third assets invested govt. securities, not taxable but carry risk exposure)
Models of investment considering tax rate, risk exposure and return rate
• LONG TERM; NO TAX AT MATURITY Public Provident Fund
(Exempt from tax completely, maximum of ` 1,50,000 per year with a lock – in period of 15 years and ROI of 8.8 %)
Tax Free Bonds(Fixed income products with a lock in period of 10 to
15 years)
Models of investment considering tax rate, risk exposure and return rate
• How TAX can erode Return on investment
Models of investment considering tax rate, risk exposure and return rate
• Regular Income : But Interest, Maturity taxed Monthly Income Schemes Mutual Fund MIPs Senior Citizen Saving’s Scheme Insurance Annuity Plans Reverse Mortgage Loan
(Loan against home, receive lumpsum periodic payments, exempt from tax)
Investment options for Geriatrics
• Senior Citizen Savings Scheme (SCSS) : For above 60 years and 55 years with certain
restrictions Amount between ` 1,000 to 15,00,000 Period : 5 years ; Rate of interest : 9% Penalty of 1.5 % if amount withdrawn before
2 years and 1 % if withdrawn after two years but before expiry of stipulated period
Investment options for Geriatrics
• Post Office Monthly Income Scheme Guaranteed Monthly Return Amount from ` 1,000 to 3,00,000 and
`6,00,000 jointly Rate of interest 8 % and 10 % percent
bonus after the end of 6 years Penalty of 5 % if amount withdrawn after 3
years of investment
Investment options for Geriatrics
• Post Office Time Deposit Similar to regular Fixed Deposits in banks Amount beginning from ` 200 to above Lock in period ranges from 1 year to 7
years Rate of return from 6.25 % to 7 %
compounded quarterly
Investment options for Geriatrics
• Fixed Deposits Regular FDs in bank AAA rated are preferable Though they offer lower rates than the
companies, but, they are safer and more liquid Amount of core deposit and period of
investment is flexible
Investment options for Geriatrics
• Monthly Income Plans Higher income return options in the form of
Mutual Funds More market oriented funds Rate of return varies from 15 % to 20 % with
flexible period of investment options Dividends on such funds are tax free but you
will need to bear market risks if any
Investment options for Geriatrics
• Varishtha Pension Bima Yojna Scheme launched by LIC Only for individuals above 60 years of age Amount of investment varying from `
66,665 to 6,66,665 Lock – in period of 15 years with rate of
interest between 9.25 % to 9.38 %
Investment options for Geriatrics
• Pension Plan : Jeevan Akshay – VI Single premium pension plan as from the date
of investment, regular fixed returns would be paid
Can invest between the age of 30 to 85 years with a minimum sum of ` 1,50,000
Annuity payable increases at 3 % p.a. 1/3rd amount of maturity is exempt from tax
Key Takeaways from such Investment Plans
• While deciding the investment options safety of capital is of paramount importance
• Liquidity of funds and timing flexibility is the key
• Tax can erode returns • Inflation key factor if the rate of increase in
inflation is greater than rate of increase in capital multiplication
Laddering Technique – Its all about timing
A B
Maturity on March 31, 2016
A1
Invest ` 25 on
April 1, 2015 for One year
April July September January March
April July September January March
Period of Blockage of FundsInvest `100 on
April 1, 2015
A2
Invest ` 25 on July
1, 2015 for One
year
A3
Invest ` 25 on Oct.1,
2015 for One year
A4
Invest ` 25 on Jan.
1, 2015 for One
year
B
Maturity of A1 on March 31,
2016
Liquidity of funds maintained
Option -1
Option -2
Game changing investment rules till hitting the Geriatric Stage
1. Save 10 % of your income for retirement(Tip : Start a SIP in a mutual fund and automate the process by giving an ECS mandate to your bank)
2. Increase investment as your income grows(Tip : When you get a raise, allocate half to the savings. It will go unnoticed as you will be enjoying the rest half)
3. Don’t dip into corpus before 60 years4. Withdraw a 5 % initially and then step up
( Tip : You can safely withdraw half the inflation adjusted appreciation. If portfolio has earned 12 % you can withdraw 6%)
Game changing investment rules till hitting the Geriatric Stage
5. 100 – Age = Your allocation to stocks6. Borrow for education, save for retirement
(Tip : An education loan inculcates financial discipline in the child. If he is responsible for the repayment, he gets into
saving habit early in life)
7. Save 20 times your annual expenses(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)
Happy Investing !!
Thanks