How to Receive Guaranteed Monthly Pension of Rs.10,000 for your family at the age of 60

Retirement planning is one of the important aspect in life. Start saving for retirement as early as possible either to retire early or to live a stress free in financial aspects after retirement. Yes, Rs. 10,000 after 30 years is not big amount, but each of these type of small amounts adds to considerable amount of money. So, never consider any amount as small. let me explain how it is possible

"ATAL PENSION SCHEME"

APS is retirement scheme for all Indian Citizens and it provides guaranteed Monthly Pensions after the age of 60 Years.

So, here is how to use APS to receive monthly pension Rs. 10,000 for a married couple.

Step 1 : Open a APS account for you in Bank
Step 2 : Choose a monthly pension amount Rs.5000 (This is the maximum amount possible as of now)
Step 3 : Choose contribution amount monthly, quarterly or half-yearly of your choice
Step 4 : Pay the contribution till 60 years of age (Auto debit from the bank account)
Step 5 : After the age of 60, you will receive guaranteed Rs, 5000 monthly till end of your life
Step 6 : After you, your spouse will receive Rs.5000 till end of his/her life.
Step 7 : After your Spouse, your Nominees or legal heirs will receive accumulated pension amount

Step 8 : Open APS account for your spouse as well and which gives Rs.5000 each and inturn Rs. 10,000 guaranteed monthly pension for your family.

Now, here is the example for contribution,

So, for example, if you are 30 and your spouse is 25, your monthly contribution will Rs. 577 + Rs. 376 = Rs. 953 per month till the age of 60.

For the ease of calculation lets round to Rs. 1000 per month and contribution for next 30 years

Amount Contributed : 

=> 1000 x 12(Months) x 30 (Years) = Rs. 3,60,000 ( In span of 30 years )

In return,

=> We get Monthly Rs. 10,000 after age of 60, until survival of either one of them

=> After you and your spouse, your nominees will get Rs. 8,50,000 + Rs. 8,50,000 => Rs. 17,00,000

Note:

Is there any age limit to open this APS account?

Yes, APS can be opened between age of 18 till 40.

Income Tax Benefits?

Your contribution during given financial year will be eligible for tax deduction under 80CCD (1)

If you are interested further, google more about ATAL PENSION Scheme. Choose wisely and stick to the plan. It is important to create multiple source of monthly income after retirement. Every small amount counts for stable financial status. Always start early to get maximum benefits.

It is necessary to take risk in investing Mutual Fund

When a person should start investing in Mutual Fund:
There is no specific time or age to start investing. Make investing has a habit, it creates you wealth over longer period of time

Who should invest in Mutual Fund:
Investing early in mid 20's or beginning of 30's has better returns due to long investment period and they can take higher risk to investment majority of the fund in equity oriented fund for better returns.

Why should we invest in Mutual Fund:
There are many reasons why one should invest in Mutual Fund, Here are the commonly known reasons,
  1. Managed by professionals
  2. Better Tax for Investors than Fixed Deposit
  3. Better Flexibility (Invested Money/even part of the Money can be withdrawn at any point in time)
  4. Diversification
  5. Beats Inflation
  6. Makes savings as an habit

But, Is it still necessary to take risk in Investing in Mutual Fund?

Here is good motivation with an example,

*TDS are not subtracted in RD and MF for above example, still MF has less tax rate than Recurring Deposit.

Mutual Fund vs Recurring Deposit in 5 years:
As we can see above table, by taking risk in Mutual Fund for a period of 5 years, we have an advantage of only around Rs. 70,000 approximately. I personally see there is no need to take this risk for this profit for a period of 5 years. It is better to invest in Recurring Deposit and keep calm.

Mutual Fund vs Recurring Deposit in 10 years:
As the investment period extends to 10 years, we can see an advantage of Rs. 4,29,000 approximately, which is a good returns compared to recurring deposit.

Mutual Fund vs Recurring Deposit in 20 years:
Now, with 20 years of investment period, we see a big advantage of Rs. 38,29,000. This is a good motivation to take risk and invest for a longer period in Mutual Fund. Considering market fluctuations, we get minimum of Rs. 30,00,000 advantage for 20 year period

Note: above example more suitable for small investors of Rs. 5k to 10k per month.

Please note that, taking risk by investing all the capital is not good and at the same time, not taking risk for smaller amount of money for over a period of time is not good.

We talk lot about risk in mutual fund, in coming blogs, we will see how to reduce the risk and take advantage of mutual fund, detailed information on what is mutual fund, how to choose a fund and how to start investing.

If interested, do read previous post related personal finance

DISCLAIMER:
1. I am not a professional Financial Adviser, please discuss with your Financial Adviser before investing.
2. I maybe wrong, your comments are welcome, this helps us to improve and better knowledge on personal finance.

Safest/Less Risky Investment Option for Long Term

Please read my previous article about Different Types of Investment Options here

On Continuation from Previous Article, i wish to start from Safest Investment Option to High Risky Investment Option.

Today, we are gonna to see list of Less Risky/Safest Investment Option in the Market.

Fixed Deposit / Term Deposit
National Savings Certificate
Public Provident Fund
Sukanya Samriddhi Account ( Thanga Magal Thittam )
Kisan Vikas Patra
Monthly Income Scheme
Senior Citizens Savings Scheme

Fixed Deposit / Term Deposit:

• What: As the name implies, we are depositing a fixed amount to Bank for fixed amount of time and bank returns the interest. There are two types of Term Deposit / Fixed Deposit
• Interest Payout Quarterly
• Interest Payout at the End of the Tenure
• Interest : Interest rates are fixed quarterly basis. Please check with respective bank for interest rates.
• Tax Benefit : 
• Interest received in this scheme is taxable and we need to declare in "Income From Other Source" when filling ITR (Income Tax Return). 
• As per the latest Financial Budget 2019: Interest earned upto Rs. 40000 per financial year are exempted from Tax.
• TDS (Tax Deduction at Source) is deducted in the Bank if it exceeds more than Rs. 40000. Still if your Taxable income is less than Rs. 5 Lakh, you can submit Form 15G and for seniors Form 15H to avoid TDS in the bank.
• Risk : It is important to know the risk involved in Fixed Deposit. Lets us assume a person named Ashok having Fixed Deposit of  Rs. 5 Lakh in a Bank and Just incase if Bank is in loss and facing Bankruptcy. Mr. Ashok will receive only Rs. 1 Lakh. This is because each account holder in Bank are insured with Rs. 1 Lakh irrespective of amount you invested with the given bank. So be aware there is always risk in every investment.

National Savings Certificate:

• What : It is a type of Term Deposit with Lock in Period of 5 Years. Interest earned yearly are deposited in next year and payout is at the end of the tenure i.e., after 5 years.
• Interest : Interest rate of this scheme are release on quarterly basis. But, please note that Interest Rate fixed on the day the amount deposited will be same during the tenure of 5 years.
• Tax benefit : 
• The Amount Deposited in this scheme can be shown under 80C category 
• The yearly interest is taxable and we need to declare in "Ïncome from Other Sources", but the interest is again deposit in the same scheme, it can be declared again in 80C and hence it is considered as Tax Free for first four year and at the end of the 5th year, interest earned in the 5th year is taxable.
• Please note: NSC taken in Post Office does not support TDS and hence interest earned needs to declared during ITR filling. Post Office does not support TDS.
• Risk : Safest Investment Option, Backed by Government.
• Note: In the recent, instead of Issuing Certificate for each investment. Passbook is being followed instead of Certificate.

Public Provident Fund:

One of my Favorite for long term wealth creation because of EEE feature (Tax Excempt during Investment, Interest Earned and on Maturity as Well) and also creates a discipline/habit of saving.

• What : It is also kid of Term Deposit with Lock in Period of 15 years.
• Deposit Frequency : We can deposit more than 2 times per month but not more than 12 per financial year.
• Interest : Interest rate of this scheme are release on quarterly basis
• Tax benefit :
• Tax Exempt from amount invested ( Under 80C )
• Tax Exempt from interest Earned
• Tax Exempt during Maturity
• Risk : Safest Investment Option, Backed by Government.
• Note: 
• It is considered as small savings scheme, hence invest on monthly and regular basis to built corpus for retirement/child education/buying home or for any reasons
• It bring habit of saving consistently
• Always invest small amount since the maturity amount is of 15 years, it is important to have liquid cash for some unknown reason. But invest consistently to build good amount of corpus during maturity.
• Can be opened in most of the banks and Post Office and we can create Standing Instructions to deduct certain amount in defined frequency.
• Since government encouraging this type of investment, interest rate of this scheme will be mostly higher than term deposit interest rates.

Sukanya Samriddhi Account:

Government introduced this scheme to have investment option for "Girl Child"

• What : Money can be deposited for the first 15 years and we don't need to deposit from 16th year till 21st year. Maturity amount will be payed out on 21st Year( From the Date of opening, not the age of the child)
• Deposit Frequency: We can deposit more than 12 times per financial year. But maximum limit not sure, will update soon
• Interest : Interest rate of this scheme are release on quarterly basis
• Tax benefit :
• Tax Exempt from amount invested ( Under 80C )
• Tax Exempt from interest Earned
• Tax Exempt during Maturity
• Risk : Safest Investment Option, Backed by Government.
• Note : Same as above "Public Provident Fund", only duration is different.

Kisan Vikas Patra:

• What : This is type of Investment Scheme, the amount invested will be doubled at the end of the maturity period ( 9 Years and 4 Months )
• Deposit Frequency : Deposited only once as Lump Sum
• Deposit Limit : There is no maximum limit for this investment.
• Tax Benefit:
• No Tax Benefit Exempt during investing
• No Tax Benefit from interest earned
• No Tax Benefit during Maturity
• Risk : Safest Investment Option, Backed by Government.

Monthly Income Scheme:

• What : As the name implies, deposit a lump sum amount and get interest received on monthly basis. The amount deposited is locked for 5 years and hence interest will be credited on monthly basis for 5 years. At the end of 5 years, deposited amount will be returned back.
• Deposit Frequency: One time as Lump Sum
• Deposit Limit : An individual can have a maximum of Deposit Limit of Rs. 4.5 Lakhs.
• Tax Benefit:
• No Tax Benefit Exempt during investing
• No Tax Benefit from interest earned
• Risk : Safest Investment Option, Backed by Government.
• Note : 
• To me best investment option for retired individuals to have higher monthly income. Comparatively better interest rate than Fixed/Term Deposit.
• Also, better than fixed deposit who has good amount of money and doesn't need money for atleast five years. Interest earned on monthly basis can be further invested in mutual funds for better returns. This might help for people who doesn't want to take risk in their principal amount in mutual fund.

Senior Citizens Savings Scheme:

• What : As the name implies, this is for "Senior Citizens" who aged 60 years or more. Deposit a lump sum amount for a period of 5 years and interest are payed out at the end of Calender quarter
• Deposit Frequency : One time as Lump Sum
• Deposit Limit : Maximum of Rs. 15 Lakhs can be deposited
• Tax Benefit:
• Tax benefit when Lump Sum is Invested ( Under 80C )
• No Tax benefit on Interest Payout ( Need to declare under Income from Other sources)
• Note: TDS will be deducted only when Interest crossed Rs. 50K per financial year. 

• Risk : Safest Investment Option, Backed by Government.
• Note:
• To me best investment option for retired individuals to have higher quarterly income. Comparatively better interest rate than Fixed/Term Deposit.

Note:

• In my next post, i will try to post more in depth detail about each of this investment option.
• I didn't cover Pension Schemes ( Like NPS, Atal Pension Scheme, PM Vaya Vandhana Scheme), i will post more details about this scheme in the future

Disclaimer:

• I am not Professional Financial Advisor, please discuss with your Financial Advisor before investing.
• I might be wrong. Correct me if any of my understanding is wrong.

An Introduction to Personal Finance

Every Salaried Indian comes across a common question? What are the different investments options available and how efficiently I can invest money across different options to meet future expenses. Here in this blog, I am going to share my personal view on different investment options

 Here are the different investment options,

Investment Type	Initial Investment	Returns	Risk
Commodity Trading	Low	High	High
Equity Trading	Medium	Moderately High	High
Mutual Fund	Medium	Medium	Medium
PPF, NSC, FD, RD	High	Low	Low

Of course there are other investments like Real Estate, Gold Bonds etc, which are not considered here because it needs high initial investments

Commodity Trading:

As name suggests the trading is done on commodities. Multi Commodity Exchange(MCX) is one of the popular exchange in India wherein trading is possible on Crude Oil, Natural Gas, Gold, Silver, Copper, Zinc, Aluminum etc. 

      Returns : Initial investment is as low as Rs. 5000 and it has a potential to earn Rs.5000 and more in few weeks
      Risk: It is one of the High Risk Investment, there is high possibility to lose Initial investment (Capital) based on market movements.

Equity Trading:
Each Company who needs financial support has different approaches to collect the fund, two commonly known ways,
1. Bank Loan
2. Through Shares
Fund which is collected through Bank, Company is liable to repay the loan as per the agreement.
The fund which is collected through Shares, the Company will repay the same as dividend and  increase the value of the each share based on the profit of the company. These shares will also be traded in commonly known exchanges in India NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) and one can gain money based on the demand in the market to buy the shares of the company.
    Returns: It depends on the company performance and positive news in the market so that value of the share is increased.
    Risk: If the company is not doing well and if there are bad news on the market, the value of the share will decrease, which in turn gives negative returns.

Mutual Fund:
Mutual Funds are similar to Equity Trading, instead of an individual buys a share, the money which is invested, is given to Common Pool (called Funds) and further the money in "Common Pool" will be invested by Professional Traders in different investment options like Equity, Bonds, Money Markets etc. A small amount of money is paid as fees to the Professional Traders.
      Returns: Professional Traders are commonly called as "Fund Managers" and the returns are depends on decisions from "Fund Manager" and Company performance where the money is invested.
      Risk: If the fund has a diversified portfolio, there is less probability to lose the capital. Also, more the years of investment less the risk.

Public Provident Fund:
It is one the commonly known investment option in India because of its EEE advantage,
Investment: The money which is invested is exempted from Tax. (Exempt During Investment)
Interest Earned: The interest earned is also exempted from Tax. (Exempt from Interest Earned)
On Maturity: The amount which is withdrawn on maturity also exempted from Tax. (Exempt on Maturity)
One of the disadvantages on PPF is its investment period.  It has a lockin period of 15 years. But if one has a long term goal with minimal risk, then PPF is one of the best option.
        Returns: The interest rate is announced every quarter.
        Risk: Capital risk is very low, since it is backed by Government of India.

National Savings Certificate:
It is a five years term deposit, the money which is invested will be locked for five years. The interest is calculated year and interest earned will be reinvested next year along with the principal. At the end of the final year i.,e fifth year the interested earned will be taxed.
Investment: The money which is invested is exempted from Tax. (Exempt During Investment)
Interest Earned: The interest earned is also exempted from Tax. (Exempt from Interest Earned)
On Maturity: On fifth year, the interested earned will be taxed and hence the same has to be added in "Income form other sources" and tax has to be paid. (Not Exempt on Maturity)
One of the disadvantages on NSC is the interest earned on Maturity is taxable.
        Returns: The interest rate is announced every quarter, but once the interest rate is fixed during investment it is same on the entire tenure of 5 years, even there are changes in every quarters.
        Risk: Capital risk is very low.

Fixed Deposit or Term Deposit:
Term Deposit are common among Salaried Indians. Because of its Low Risk and very low lockin period. But the FD has its own disadvantages, it is not EEE, which means It is not exempted from Tax during Investment, Interest Earned and On Maturity.
        Returns: The interest rate is announced every quarter, but once the interest rate is fixed during investment it is same on the entire tenure. Also note that TDS(Tax Deduction at Source) will be deducted if the interest earned in a given back account(Through Multiple Term Deposit) more than Rs. 10,000.
        Risk: Capital risk is low.

Recurring Deposit:
Recurring Deposit is similar to Term Deposit, Investments are done as Lump Sum in Term Deposit and Investments are done on monthly basis in Recurring Deposit.
        Returns: The interest rate is announced every quarter, but once the interest rate is fixed during investment it is same on the entire tenure. Also note that TDS(Tax Deduction at Source) will be deducted if the interest earned in a given back account(Through Multiple Term Deposit) more than Rs. 10,000.
        Risk: Capital risk is low.

Based on the different options available, one has to analyze and invest the some percentage of money in different investments options and take informed risk so that in long term one can beat inflation and create wealth.

For Example, lets consider a salaried Indian investing Rs. 10,000 every month for next 20 years, here are the project amount,

Recurring Deposit: (6.9% Interest)
Money Invested     : 24,00,000
Maturity Amount   : 50,47,943 (TDS is not deducted, maturity amount will be less than projected here)

Mutual Fund: (15% Interest*)
Money Invested   : 24,00,000
Maturity Amount : 1,32,92,054
* 15% Interest is an assumption, interest earned might vary based on market.
 
So, on comparing the results between RD and MF, one has to plan and make 
informed investment and create wealth for the future.

In coming weeks, I shall post few more blogs with detailed information on above each investments and so stay tuned.

DISCLAIMER:
I am not Professional Financial Advisor, please discuss with your Financial Advisor before investing.