Wish you all a very Happy New Year 2021
The following are the best investment plans for 2021 :
- ABC Best Return Fund
- DEF Term Plan
- GHI Health Insurance Plan
- JKL Sanchay Plan
- MNO Guaranteed Plan
- PQR Life Long Pension Plan
- Etc. Etc.
For many of us, Life would be so comfortable if someone can provide the list as above, isn’t it? Most of us are always searching for best in everything. However, this leads to delay in investing, selecting wrong instruments, accumulating too many instruments, etc.
Frankly , there is no such thing as best, everything is subjective and depends on the needs of the person.
One can simplify his/her financial life in the following manner :
- The first important thing should be to create a sound foundation with accumulating a Contingency/Emergency fund worth at least 6 months of expenses plus EMI’s
- The second important thing is Life Insurance Cover, One should buy an adequate value of term plan if his/her family members depend on his/her income (the term plan should be simple, with no riders or with no promise to return premiums), it should be till the age of expected retirement, and it should be with a regular annual premium payment term till the tenure of the policy.
- The third important thing is Personal Accident Disability cover, One should buy an adequate value of Personal Accident Disability cover to cover the risk of disability because of accidents (this should be a separate standalone policy, as the policies that come as a rider has various exclusions and a comprehensive cover is not available.)
- The fourth important thing is Health Insurance cover, besides one’s employer’s health insurance cover, one should get an independent health insurance cover, to continue the health cover in case of job change or for continuous coverage after quitting the job.
Financial Freedom / Retirement
- This is the most important goal for everyone and all need to plan for it as early as possible.
- It is important to assume life expectancy up to 90 to have a high margin of safety
- You can simply use any online calculator to arrive at the target corpus, or you can use any of the following way of estimating the target.
- Estimate an annual expense required for yourself as of today, inflate the same with inflation (6% / 7% / 8%) percentage you feel comfortable for the tenure in years up to retirement, Multiply the derived amount by the post-retirement years, this can be your target corpus for retirement.
Example: You are 35 years of age and plan to retire at age 55, you estimate that you will need Rs. 35,000 per month (Rs. 4,20,000 per year) after retirement, assuming inflation of 7% the Annual expenses required at retirement will be Rs. 16,25,000. Now simply multiply this amount with the post-retirement years (Post retirement Age 90–retirement age 55 = 35) Hence (Rs. 16,25,000 X 35 = Rs. 5,68,75000) So ideally Rs. 6 Crores should be your Target Corpus for Retirement.
Assuming 8% return on Portfolio you need to save Rs. 1,05,000 per month for next 20 years to achieve the target. Review the above calculation every year and do the fine tuning as required. (If you can increase your contribution with 5 % each year, you can start with Rs. 70,000 per month.)
- Estimate an annual expense required for yourself as of today, simply multiply this by the post-retirement years and consider this as target corpus.
Example: You are 35 years of age and plan to retire at age 55, you estimate that you will need Rs. 35,000 per month (Rs. 4,20,000 per year)
Now simply multiply this amount with the post-retirement years (Post retirement Age 90–retirement age 55 = 35) Hence (Rs. 4,20,000 X 35 = Rs. 1,47,00,000) So ideally Rs. 1.50 Crores should be your Target Corpus for Retirement.
You need to save Rs. 63,000 per month to achieve the target.
Review the above calculation every year and do the fine tuning as required.
For both the above cases one can invest in a Portfolio of Equity and Debt in the ratio of 50:50, If someone feels he wants to be more aggressive he can increase the Allocation to Equity and someone who feels he wants a conservative approach he can reduce the equity allocation.
For Equity exposure one can use simple Index Funds Direct Plans and for Debt the instruments can be a combination of EPF/VPF/PPF/Bank FD/Money Market Mutual Funds Direct Plans, Just review and rebalance annually, reduce the equity exposure to around 20% by the age of retirement.