No matter what age you are, SIPs can help you build a sizeable retirement corpus from small investments over time
The very thought of retirement evokes pleasant memories. Most of us see retirement as a phase of life when work-related worries are over and one can lead one's life as per one's will. While retirement is indeed a period free from work-related worries, it is not necessarily a period free from 'money-related' worries. For most of us, the regular income from our jobs is likely to stop post retirement. Thus, in order to enjoy retirement, saving for it is indispensable.
Gone are the days when most people worked for the government and were paid pensions. These days, even in government jobs, one has to invest towards building one's nest egg. With increasing life expectancy, it's even more important to plan for retirement. The retired life can be as long as 30 to 40 years and with diminishing capability to engage in active work, your accumulated corpus gets even more crucial.
Retirement savings for all
The best time to start saving for retirement is when you start working. Alas, at that stage many of us don't realise the importance of retirement planning! With so many spending avenues available, saving is the last thing that comes to our mind. But consider this: if you start doing a monthly SIP of Rs10,000 in an equity fund (that returns 15 per cent yearly) when you are 23 years and keep increasing this amount by 10 per cent yearly, at 60 years, your accumulated corpus will be about Rs 40 crore.
Does this amount look magical to you? It isn't. It is simply the power of compounding and discipline. While your equity fund does the compounding for you, SIPs, short for systematic investment plans, bring discipline to your investing. They help you build a large corpus from small investments over a period.
Naturally, the earlier you start, the smaller the investment you will need to reach your estimated retirement corpus. For a middle-aged person who hasn't started investing yet, a larger SIP is needed to reach the same goal amount.
For most of us, doing SIPs in a tax-saving fund up to the tax-exempt limit (which is currently Rs 1.5 lakh yearly) can help build a retirement corpus while also saving tax. Beyond Rs 1.5 lakh, a couple of good multi-cap equity funds can do the job.
What about those who are nearing retirement and already have accumulated a corpus in some traditional savings instrument such as the Public Provident Fund? After taking care of regular income through instruments like Senior Citizens Savings Scheme, such people can move their remaining retirement corpus to a debt fund. From this debt fund, they can systematically transfer the amount to a good balanced fund over the next several months. This 'SIP' from one fund to another is called STP, systematic transfer plan. The growth in a balanced fund will help retirees grow their corpus to counter the effect of inflation.
Source: valueresearchonline.com
The very thought of retirement evokes pleasant memories. Most of us see retirement as a phase of life when work-related worries are over and one can lead one's life as per one's will. While retirement is indeed a period free from work-related worries, it is not necessarily a period free from 'money-related' worries. For most of us, the regular income from our jobs is likely to stop post retirement. Thus, in order to enjoy retirement, saving for it is indispensable.
Gone are the days when most people worked for the government and were paid pensions. These days, even in government jobs, one has to invest towards building one's nest egg. With increasing life expectancy, it's even more important to plan for retirement. The retired life can be as long as 30 to 40 years and with diminishing capability to engage in active work, your accumulated corpus gets even more crucial.
Retirement savings for all
The best time to start saving for retirement is when you start working. Alas, at that stage many of us don't realise the importance of retirement planning! With so many spending avenues available, saving is the last thing that comes to our mind. But consider this: if you start doing a monthly SIP of Rs10,000 in an equity fund (that returns 15 per cent yearly) when you are 23 years and keep increasing this amount by 10 per cent yearly, at 60 years, your accumulated corpus will be about Rs 40 crore.
Does this amount look magical to you? It isn't. It is simply the power of compounding and discipline. While your equity fund does the compounding for you, SIPs, short for systematic investment plans, bring discipline to your investing. They help you build a large corpus from small investments over a period.
Naturally, the earlier you start, the smaller the investment you will need to reach your estimated retirement corpus. For a middle-aged person who hasn't started investing yet, a larger SIP is needed to reach the same goal amount.
For most of us, doing SIPs in a tax-saving fund up to the tax-exempt limit (which is currently Rs 1.5 lakh yearly) can help build a retirement corpus while also saving tax. Beyond Rs 1.5 lakh, a couple of good multi-cap equity funds can do the job.
What about those who are nearing retirement and already have accumulated a corpus in some traditional savings instrument such as the Public Provident Fund? After taking care of regular income through instruments like Senior Citizens Savings Scheme, such people can move their remaining retirement corpus to a debt fund. From this debt fund, they can systematically transfer the amount to a good balanced fund over the next several months. This 'SIP' from one fund to another is called STP, systematic transfer plan. The growth in a balanced fund will help retirees grow their corpus to counter the effect of inflation.
Source: valueresearchonline.com
Many investors invest in tax-planning funds towards the end of the financial year by making a lump-sum investment. This financial year, distributors are asking such investors to spread their tax-saving investments across the year by opting for systematic investment plans (SIP) in ELSS.
1. Can one do a SIP in an ELSS ?
ELSS is a type of diversified equity mutual fund which is qualified for tax exemption. Investors can do a SIP in such funds. The SIP is a specific amount, invested for a continuous period at regular intervals, generally on a monthly basis. It allows the investor to buy units of the scheme at a pre-decided frequency. One can participate in the stock market without trying to time it. It also brings discipline to your investments. Investors can opt for the growth plan or the dividend plan.
2. When will the ELSS SIP start?
Investors can fill out a form along with the SIP mandate and register it. Then, submit it to the fund house. It takes 21-30 days for the bank to register your mandate.
3. What tenure should the SIP be for?
The SIP should be for tenure of at least a year. If you began later in the year, then you could make up for the missed installments by paying a lump sum. Fund houses stipulate a minimum time frame of 6 months for the SIP. Investors can do an SIP for any time period namely 1 year, 3 years or even opt for the perpetual option.
4. What is the advantage of SIP in an ELSS fund?
SIP or staggered investments in an ELSS fund avoids last-minute rush and helps spread their investments through the year. Investments up to Rs. 1,50,000 per financial year can be claimed as deductions.
5.How long will investments be locked in?
In case of an ELSS SIP, every installment will be locked for three years. Suppose, you start a SIP of Rs. 10,000 per month on May 1, 2017 for one year. The first installment will be locked till April 2020, while the second installment will be locked till May 2020 and so on.
6. Can I add a lump sum to my SIP later in the year?.
You can add a lump sum amount to the same scheme in which you are running an SIP. So if you are running a Rs.10,000 per month SIP and wish to add Rs. 30,000 to the scheme in which you are running a SIP, you can do so by filling the additional purchase form. The SIP continues to run as it is.
Source:Economic Times
1. Can one do a SIP in an ELSS ?
ELSS is a type of diversified equity mutual fund which is qualified for tax exemption. Investors can do a SIP in such funds. The SIP is a specific amount, invested for a continuous period at regular intervals, generally on a monthly basis. It allows the investor to buy units of the scheme at a pre-decided frequency. One can participate in the stock market without trying to time it. It also brings discipline to your investments. Investors can opt for the growth plan or the dividend plan.
2. When will the ELSS SIP start?
Investors can fill out a form along with the SIP mandate and register it. Then, submit it to the fund house. It takes 21-30 days for the bank to register your mandate.
3. What tenure should the SIP be for?
The SIP should be for tenure of at least a year. If you began later in the year, then you could make up for the missed installments by paying a lump sum. Fund houses stipulate a minimum time frame of 6 months for the SIP. Investors can do an SIP for any time period namely 1 year, 3 years or even opt for the perpetual option.
4. What is the advantage of SIP in an ELSS fund?
SIP or staggered investments in an ELSS fund avoids last-minute rush and helps spread their investments through the year. Investments up to Rs. 1,50,000 per financial year can be claimed as deductions.
5.How long will investments be locked in?
In case of an ELSS SIP, every installment will be locked for three years. Suppose, you start a SIP of Rs. 10,000 per month on May 1, 2017 for one year. The first installment will be locked till April 2020, while the second installment will be locked till May 2020 and so on.
6. Can I add a lump sum to my SIP later in the year?.
You can add a lump sum amount to the same scheme in which you are running an SIP. So if you are running a Rs.10,000 per month SIP and wish to add Rs. 30,000 to the scheme in which you are running a SIP, you can do so by filling the additional purchase form. The SIP continues to run as it is.
Source:Economic Times
Where there’s a will, there’s usually someone ready to contest it. Where there’s none, someone is ready to fight over the inheritance anyway. Does this mean writing a will is an exercise in futility? “No, it is not. While law allows a person to voice concern over a person’s inheritance, if a will is made properly, the objection can be dismissed easily,” says Rohan Mahajan, Founder & CEO, LawRato. A will reduces expense, effort and paperwork, not to mention disputes within the family. While writing the will itself is a simple task, it is best to do it under legal supervision, consulting a lawyer or online will-makers. “This is because on your own, you are likely to overlook many details that can result in legal battles,” says Raj Lakhotia, Founder, Dilsewill, an online will-maker.
1) Not having a will
This is the biggest mistake and a step that needs to be taken as soon as you hit your 50s, or earlier if you have multiple assets and properties.
More time and higher expenses: In the absence of a will, legal heirs are forced to spend large sums to acquire mandatory documents like a succession certificate or letter of administration, in order to transfer titles, cash, investments, assets or properties, not to mention paying prohibitive lawyers’ fees. A succession certificate is required in the case of a movable property, while the letter of administration is needed in the case of an immovable property. While having nominees helps with the immediate transfer of cash and certain movable assets, you need the legal documents because a nominee is only a caretaker of assets and will have to pass these on to the legal heirs.
Undesirable distribution of assets: A will helps decide which asset you want to give to which heir, in what proportion. Without one, you have no power over who inherits your assets and the court follows the succession acts as per your religion. For instance, Hindus, Buddhists, Jains and Sikhs are governed by the Hindu Succession Act, 1956, and Hindu Succession (Amendment) Act 2005.
2) Drafting incorrectly
You can draft the will either on your own, through a lawyer, or via any of the online will-makers. If any detail is not precise or you get it wrong, the will can be easily contested in court. Make sure you enter the personal details, including name, address, place and date; put in the full name and relationship of beneficiaries; mention the assets precisely; have it done in the presence of two witnesses; and sign it along with the witnesses and their details. “The most important aspect of a will is a valid signature of the person making it. Since a will can be written on a blank paper, the signature is the only authentic detail,” says Mahajan.
Equally important are the three declarations—that you are revoking all earlier wills, that you are of sound mind, and that you are not making the will under any pressure. If a person is old, attach a doctor’s certificate certifying his sanity. You could also register the will, as it offers a degree of authenticity since it has been approved by a government official. Remember, that a registered will can be as easily challenged as a non-registered will. “Registering minimises the grounds on which a will can be challenged. Since soundness of mind, forged signatures and drafting under coercion are common grounds for challenging a will, a visit to the registrar and being photographed bring down the possibility of it being contested on these grounds,” says Jasmeet Singh, Advocate, Delhi High Court.
3) Not being specific
“Make your will as specific as possible. Mention each bank account, locker number, or property details,” says Singh. List all your assets, movable and immovable, in detail. For investments and insurance, list the scheme name, number, financial institution and insurer, along with the addresses. For more than one property, distinguish each one clearly by listing dates of purchase, addresses, etc. As for heirs, don’t forget to mention the full name, your relationship with him, and the assets you want to give.
4) Not updating the will
If there is any alteration in the status of assets or heirs, you should draft another will to incorporate the changes. Any lifestage development, such as the birth of a child, marriage or divorce, will call for a redistribution of assets. If any asset has been sold or new ones bought, these will have to be removed or included. All you have to do is to draft a new will, including a declaration that it is your final will and revoking all previous wills and codicils. Also register the updated will, though it doesn’t mean that the unregistered will shall not be considered by the court. As per law, the last drawn will is considered whether registered or not.
5) Wrong executor
A common mistake is appointing relatives or friends in the same age bracket, or minor children, as executors. “Ensure that the executor is the best choice for the time-consuming and complex job. He/she must be trustworthy, know about your wishes, and work according to your will, not his own,” says Mahajan. To ensure objectivity, you could also get a thirdparty administrator for a nominal sum.
6)Gifting while alive
Gifting assets during one’s lifetime may not be a good idea. “If you gift an asset while you are still alive, it will be immune to challenge. But it can also make old people vulnerable because once the property is in the hands of children, they can ill-treat parents,” says Singh. If, instead, it is willed to the child, the balance of power remains with parents. “If you give away everything, how will you live?” asks Lakhotia.
“Before you decide to gift, know the difference between a gift deed, and a will. A will, be it registered or not, is revocable during the lifetime of the testator. On the other hand, a gift deed, once executed, is irrevocable,” says Mahajan. As for tax, any gift to specified relatives is exempt from tax in the hands of the receiver. In case of an immovable property given as gift to specified relatives, it will invite stamp duty.
7) Neglecting illness
It is important to make provisions in the will in case you suffer from a terminal illness, disability or are in a coma. Mention who will take charge of your estate and financial affairs, and if you have kids, who will be their guardian. You could even appoint a power of attorney or set up a trust to handle your affairs. You can now also pen down a living will, as per a recent Supreme Court ruling. You can decide the particular line of treatment or its withdrawal, if you want, by appointing an executor to take the health-related decisions on your behalf.
Source: timesofindia.indiatimes.com
1) Not having a will
This is the biggest mistake and a step that needs to be taken as soon as you hit your 50s, or earlier if you have multiple assets and properties.
More time and higher expenses: In the absence of a will, legal heirs are forced to spend large sums to acquire mandatory documents like a succession certificate or letter of administration, in order to transfer titles, cash, investments, assets or properties, not to mention paying prohibitive lawyers’ fees. A succession certificate is required in the case of a movable property, while the letter of administration is needed in the case of an immovable property. While having nominees helps with the immediate transfer of cash and certain movable assets, you need the legal documents because a nominee is only a caretaker of assets and will have to pass these on to the legal heirs.
Undesirable distribution of assets: A will helps decide which asset you want to give to which heir, in what proportion. Without one, you have no power over who inherits your assets and the court follows the succession acts as per your religion. For instance, Hindus, Buddhists, Jains and Sikhs are governed by the Hindu Succession Act, 1956, and Hindu Succession (Amendment) Act 2005.
2) Drafting incorrectly
You can draft the will either on your own, through a lawyer, or via any of the online will-makers. If any detail is not precise or you get it wrong, the will can be easily contested in court. Make sure you enter the personal details, including name, address, place and date; put in the full name and relationship of beneficiaries; mention the assets precisely; have it done in the presence of two witnesses; and sign it along with the witnesses and their details. “The most important aspect of a will is a valid signature of the person making it. Since a will can be written on a blank paper, the signature is the only authentic detail,” says Mahajan.
Equally important are the three declarations—that you are revoking all earlier wills, that you are of sound mind, and that you are not making the will under any pressure. If a person is old, attach a doctor’s certificate certifying his sanity. You could also register the will, as it offers a degree of authenticity since it has been approved by a government official. Remember, that a registered will can be as easily challenged as a non-registered will. “Registering minimises the grounds on which a will can be challenged. Since soundness of mind, forged signatures and drafting under coercion are common grounds for challenging a will, a visit to the registrar and being photographed bring down the possibility of it being contested on these grounds,” says Jasmeet Singh, Advocate, Delhi High Court.
3) Not being specific
“Make your will as specific as possible. Mention each bank account, locker number, or property details,” says Singh. List all your assets, movable and immovable, in detail. For investments and insurance, list the scheme name, number, financial institution and insurer, along with the addresses. For more than one property, distinguish each one clearly by listing dates of purchase, addresses, etc. As for heirs, don’t forget to mention the full name, your relationship with him, and the assets you want to give.
4) Not updating the will
If there is any alteration in the status of assets or heirs, you should draft another will to incorporate the changes. Any lifestage development, such as the birth of a child, marriage or divorce, will call for a redistribution of assets. If any asset has been sold or new ones bought, these will have to be removed or included. All you have to do is to draft a new will, including a declaration that it is your final will and revoking all previous wills and codicils. Also register the updated will, though it doesn’t mean that the unregistered will shall not be considered by the court. As per law, the last drawn will is considered whether registered or not.
5) Wrong executor
A common mistake is appointing relatives or friends in the same age bracket, or minor children, as executors. “Ensure that the executor is the best choice for the time-consuming and complex job. He/she must be trustworthy, know about your wishes, and work according to your will, not his own,” says Mahajan. To ensure objectivity, you could also get a thirdparty administrator for a nominal sum.
6)Gifting while alive
Gifting assets during one’s lifetime may not be a good idea. “If you gift an asset while you are still alive, it will be immune to challenge. But it can also make old people vulnerable because once the property is in the hands of children, they can ill-treat parents,” says Singh. If, instead, it is willed to the child, the balance of power remains with parents. “If you give away everything, how will you live?” asks Lakhotia.
“Before you decide to gift, know the difference between a gift deed, and a will. A will, be it registered or not, is revocable during the lifetime of the testator. On the other hand, a gift deed, once executed, is irrevocable,” says Mahajan. As for tax, any gift to specified relatives is exempt from tax in the hands of the receiver. In case of an immovable property given as gift to specified relatives, it will invite stamp duty.
7) Neglecting illness
It is important to make provisions in the will in case you suffer from a terminal illness, disability or are in a coma. Mention who will take charge of your estate and financial affairs, and if you have kids, who will be their guardian. You could even appoint a power of attorney or set up a trust to handle your affairs. You can now also pen down a living will, as per a recent Supreme Court ruling. You can decide the particular line of treatment or its withdrawal, if you want, by appointing an executor to take the health-related decisions on your behalf.
Source: timesofindia.indiatimes.com
The more you use your credit card while you’re in credit card debt, the quicker your interest payments will increase, pulling you into a debt trap.
Credit instruments such as loans and credit cards help us buy homes, automobiles, education, and even lifestyle choices such as clothes, gadgets and holidays. If you have a steady flow of monthly income, repaying your debts is rarely a challenge. However, actively managing your debt can help you secure interest savings and become debt-free quicker. Here are some ideas to accomplish this.
Take stock & prioritise debt
How many unpaid loan and credit card balances do you have? Take stock of the various loans you’ve taken over the years. Note the current interest rate on each, as well as the repayment tenure left. Now prioritise the loans you want to settle soon. For example, your credit card balance may have a high-interest rate of 40%, and even a small balance could drain your finances. Therefore, you should prioritise its repayment first. On the other hand, your home loan rate may be just 9%, and you also get useful income tax deductions. Therefore, it makes sense to keep this loan longer.
Make pre-payments actively
The best way to settle your loans is to actively pre-pay on it. A pre-payment is a principal payment over and above your EMIs. Periodic pre-payment can significantly reduce your interest payment. Suppose, you have borrowed Rs 40 lakh for 240 months at 9.5%, with an EMI of Rs 34,713. Your total interest repayment over 20 years would be Rs 43.31 lakh. But if you pre-paid just Rs 1 lakh along with your 13th EMI, your total interest drops to Rs 39.56 lakh, and your loan tenure reduces to 227 months.
Pause further credit card use
If you have a burgeoning credit card debt, consider pausing its use for a few days. The more you use your credit card while you’re still in credit card debt, the quicker your interest payments will increase, pulling you into a debt trap that would be hard to exit. Therefore, go back to cash or debit cards while you try to pay off your credit card debt. Once you’re free, try and stick to 20-30% of your spending limit every month to keep your card debt manageable.
Shift to low-interest debt
Have you checked if the rate of interest on your loan is in tandem with rates prevalent in the market today? For example, you may still be repaying a home loan at 9% while some lenders charge 8.5%. Even half a percent less can save you lakhs of rupees in the long term. You can transfer your loan to a cheaper one. Credit card balance can also be transferred to another card with a promotional, lower interest rate. Similarly, you can also consolidate your debt into a single loan. For example, instead of repaying a credit card balance, a personal loan, and a home loan, you can consolidate them into a top-up loan.
Keep increasing EMIs
With each passing year, you may see your income grow in some form while the size of your EMI may remain more or less the same. Use the increase in your income to amp up your EMIs. This will help you pre-pay more on a monthly basis, thus ending your loan quicker.
Source: financialexpress.com
Credit instruments such as loans and credit cards help us buy homes, automobiles, education, and even lifestyle choices such as clothes, gadgets and holidays. If you have a steady flow of monthly income, repaying your debts is rarely a challenge. However, actively managing your debt can help you secure interest savings and become debt-free quicker. Here are some ideas to accomplish this.
Take stock & prioritise debt
How many unpaid loan and credit card balances do you have? Take stock of the various loans you’ve taken over the years. Note the current interest rate on each, as well as the repayment tenure left. Now prioritise the loans you want to settle soon. For example, your credit card balance may have a high-interest rate of 40%, and even a small balance could drain your finances. Therefore, you should prioritise its repayment first. On the other hand, your home loan rate may be just 9%, and you also get useful income tax deductions. Therefore, it makes sense to keep this loan longer.
Make pre-payments actively
The best way to settle your loans is to actively pre-pay on it. A pre-payment is a principal payment over and above your EMIs. Periodic pre-payment can significantly reduce your interest payment. Suppose, you have borrowed Rs 40 lakh for 240 months at 9.5%, with an EMI of Rs 34,713. Your total interest repayment over 20 years would be Rs 43.31 lakh. But if you pre-paid just Rs 1 lakh along with your 13th EMI, your total interest drops to Rs 39.56 lakh, and your loan tenure reduces to 227 months.
Pause further credit card use
If you have a burgeoning credit card debt, consider pausing its use for a few days. The more you use your credit card while you’re still in credit card debt, the quicker your interest payments will increase, pulling you into a debt trap that would be hard to exit. Therefore, go back to cash or debit cards while you try to pay off your credit card debt. Once you’re free, try and stick to 20-30% of your spending limit every month to keep your card debt manageable.
Shift to low-interest debt
Have you checked if the rate of interest on your loan is in tandem with rates prevalent in the market today? For example, you may still be repaying a home loan at 9% while some lenders charge 8.5%. Even half a percent less can save you lakhs of rupees in the long term. You can transfer your loan to a cheaper one. Credit card balance can also be transferred to another card with a promotional, lower interest rate. Similarly, you can also consolidate your debt into a single loan. For example, instead of repaying a credit card balance, a personal loan, and a home loan, you can consolidate them into a top-up loan.
Keep increasing EMIs
With each passing year, you may see your income grow in some form while the size of your EMI may remain more or less the same. Use the increase in your income to amp up your EMIs. This will help you pre-pay more on a monthly basis, thus ending your loan quicker.
Source: financialexpress.com