The following are the best investment plans for 2021 :

1. ABC Best Return Fund
2. DEF Term Plan
3. GHI Health Insurance Plan
4. JKL Sanchay Plan
5. MNO Guaranteed Plan
6. PQR Life Long Pension Plan
7. 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 :

Foundation

• 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.

Lets try to have a look at the above Questions from a different point of view,
Don’t you feel these Questions are same like some one asking ‘Which Vehicle should I Buy ?’

Now what can be a right answer for the same ? What will you suggest ? or will you need some more information to answer this question ?

I feel you need some more information like,
Why he needs a Vehicle, for his daily commute to Work or Weekend Travel with Family ?
How many Average Kms he is expected to Travel Daily / Monthly
What is his Budget
Now at least you can workout something based on this additional information.

In the same way additional Information is required
Why you need to Buy Stock, Mutual Fund Scheme, Children’s Plan, Pension Plan ?
How much Amount you need to Accumulate and by when ?
How much you can save every Month / Year for Accumulating the respective Amount ?
Once you have this additional information you can workout what Product to select which will help you to Accumulate the required Amount in the respective Time in a Optimum way.

• So just KISS, Keep It Super Simple.

Let us try to simplify Retirement Planning with the help of a case study

Abhishek and Aishwarya is a couple living in Pune. Abhishek is 37 years old and works in an MNC. Aishwarya is a housewife and she is 35 years old. Abhishek and Aishwarya feel that they can lead a comfortable life after retirement if they have Rs. 50,000 per month for their expenses. Abhishek would like to stop working at the age of 60.

Let us see how they can plan for their Retirement

1. The first step would be to estimate the value of Rs. 50,000 when Abhishek retires at age 60
2. Second step would be to calculate number of years in retirement considering realistic life expectancy
3. Then we will calculate the retirement corpus Abhishek and Aishwarya would need to accumulate
4. The final step would be to calculate amount they should start saving per month towards retirement

Let us understand each step in detail

Step 1: Estimating the value of Rs. 50,000 at age 60 of Abhishek

Currently Abhishek is 37 years old and he has 23 years to reach retirement age of 60. Considering an average inflation of 7%, he will require an amount of Rs. 2.37 Lakhs per month at age 60

Step 2: Calculating number of years in retirement considering realistic life expectancy

This is an important consideration in retirement planning. We should consider realistic life expectancy. If we consider low life expectancy and do the retirement planning, we may run out of money and struggle financially in later years in retirement. Ideally, we should consider life expectancy of at least 90 years to be on safer side; higher the better

Step 3: calculating the retirement corpus needed to be accumulated

Considering the life expectancy of 90 years for both Abhishek and Aishwarya, the amount accumulated should be sufficient to finance 32 years after Abhishek’s retirement (as per Aishwarya’s life expectancy). Since in this case, the amount required per month is Rs. 2.37 Lakhs in the first year of Abhishek’s retirement, Abhishek and Aishwarya need to accumulate Rs. 9.10 core for retirement corpus

Step 4: Amount to be saved per month

Most people are comfortable till this step and then confusion starts with questions like “how much do we need to save?” and “which products and instruments to choose?” etc.
Let us try to figure out how to go about it, in our case study Abhishek has 23 years ie. 23 X 12 = 276 Months to accumulate the amount of Rs. 9.10 Crores

Monthly savings required to accumulate Rs. 9.10 Crores @ different expected return
Expected Return 4% 6% 8% 10% 12%
Monthly Saving Rs. 2,03,000 Rs. 1,56,000 Rs. 1,19,500 Rs. 90,500 Rs. 68,000
Products that can be used Savings A/c. Fixed Deposits, Insurance Endowment Plans, Pension Plans Debt Mutual Funds, NPS, ULIPS NPS, ULIPS, Equity Mutual Funds, Real Estate Equity Mutual Funds, Direct Equity, Real Estate

From the above we can understand that if Abhishek and Aishwarya save money in an instrument generating 4 % return, they need to save Rs. 2.03 Lakhs per month whereas if they save their money in an instrument generating 12 % return, they need to save Rs. 68 Thousand per month. The amounts to be saved per month can also come down significantly if monthly savings are increased every year with proportionate increase in income.

Each product and instrument has its own advantages as well as disadvantages. There is risk associated with every product too

Like savings a/c, Fixed Deposits, insurance endowment plans and pension plans face inflation risk, (meaning they provide return less than the inflation)

Fixed Deposits additionally face Interest risk and reinvestment risk, (we start a FD and the interest rate increases in market 0r at the time of renewal the interest rate in market has fallen)

Debt Mutual Funds, ULIPS, Equity Mutual Funds and Direct Equity face Volatility Risk(Volatility means the return is not fixed sometimes it is higher sometimes it is lower also at times its negative, Liquidity risk means the money is not easily available for eg. A property may be valued at 1 crore, however we cannot sell a part of it if we require 10 lakhs or there may be no buyer at that time to but at 1 crore)
NPS and Real Estate face Liquidity Risk

Therefore, a proper Investment plan needs to be put in place that usesa balanced mix of investment products and instruments to reach the target within the required timeframe.

Regular annual review of Retirement Planning is very important. Below are the points that should be considered inthe review.
• Is any change required to be done in per month expense considered for the retirement planning calculations
• Does inflation rate considered still holds good or needs to be changed
• Are savings and investments made as planned till date or there is some gap in it. How to fill the gap if there is.
• Does expected return requires to be changed

from above, we can understand that Retirement planning is not a onetime activity but a continuous process which can be improved with every review so that we can reach our target efficiently.

Please leave your thoughts in the comments below.

As per my observation most of the People when working on their financial planning are busy finding the Best Instruments / products for their Savings and Investments, they are very fascinated by High Returns, and in this process they complicate their Financial Planning and their Life.

Just observe our Life

• We get up in the morning
• Answer Nature’s call
• Meditate
• Exercise
• Take a Bath
• Have Break Fast
• Go to our respective Jobs (Office/College/School etc.)
• Have Lunch
• After Working Hours come back Home
• Spend time with Family
• Have Snacks
• Have Dinner
• Go to Sleep
• Now isn’t this a normal Simple Lifestyle we have, is there any complication, (of course some of the activities may be in different sequence for some people)

In the same way can’t our Financial Planning be Simple to remove complication from our life, How ?

1. Decide how much Money we require for our respective Financial Goals
2. Estimate what will be the Future value of these Goals at the Time required
3. Estimate how much we need to Save / Invest per month to achieve the estimated Target
4. Start Saving / Investing the respective Amount per month
5. foresee what can be the problems in achieving these targets and do Risk planning for the same
6. Once a year Review the situation of both the Goals and the accumulated amount

To start with just put your Money in Simple Products like Recurring Deposit with Bank or Post Office, Bank Fixed Deposits, Liquid Funds of Mutual Funds.

Simultaneously start learning more about financial planning as a holistic approach to fulfill our life goals, learn about the various other options like Debt, Equity, Gold, Real Estate, understand how they work, how you can optimize your returns using the mix of these options.

Don’t commit your Money to any Product or Instrument that you don’t properly understand, Don’t fall for anything that promises higher returns.

Keep things Short and Simple.

Please put across your thoughts on simplification of personal finance

Thank you

Chandan Singh Padiyar

How many do really get success in this ?
Which Investment helps you to generate the best return ?
Who actually is responsible for generating the best return on your Investment Portfolio ?

What do you think ?

You, You are the one !
Yes, You are the one who is responsible for generating the best return on your Investment Portfolio.

It is your Understanding that will help you generate the best return.
It is your Money Management that will help you generate the best return.
It is your Strategy that will help you generate the best return.

How ?
Lets understand with an example.

A, B, C & D are good friends, they decide to Invest Rs. 1 Lakh each in a Diversified Equity Mutual Fund to earn best return.

In a few days ‘A’ has some emergency and decides to withdraw his Invested Amount, there was no much movement in the value, but he has to pay the exit load and hence he gets back less Money than the Amount actually Invested.

The next year the economy is not doing well and hence the Investment value drops to Rs. 75,000, Now ‘B’ is disturbed by seeing his Investment value drop down to Rs. 75,000, Even though he does not need the money he decides to withdraw his Investment due to fear of further reduction in value, and hence faces a loss of Rs. 25,000

After couple of years the economy recovers and the businesses start to flourish, the Investment value rises to Rs. 1,50,000, here ‘C’ withdraws his Investment and enjoys a gain of Rs. 50,000

‘D’ is still continuing his Investment since he does not need the money now.

What do you conclude from the above example ?

Who is responsible for generating the best return on your Investment Portfolio ?

Under section 80C of the Income Tax Act 1961,you can claim benefit for certain payments made and certain investments that are eligible as below.

Payment Options :

• Children’s Tuition Fees
• Stamp Duty and Registration charges for New House
• Repayment of Home Loan Principal
• Life Insurance Premium

Investment Options :

• Contribution to EPF (Employees Provident Fund)
• Contribution to VPF (Voluntary Provident Fund) additional contribution to above
• PPF (Public Provident Fund)
• NPS (National Pension Scheme)
• NSC (National Savings Certificate)
• 5 Years Bank Fixed Deposit
• SCSS (Senior Citizen’s Savings Scheme)
• SSY (Sukanya Samruddhi Yojana)
• ULIP (Unit Linked Insurance Premium)
• ELSS (Equity Linked Savings Scheme)

The youngsters while choosing any option should focus on the following

1. Use option which does not require you to have a Fixed recurring commitment every year – so that in future when you will be having default payments like HomeLoan repayment or children’s Tuition fees you need not have to pay additional for Tax saving.
2. Use option whose return is Not taxable or is less taxable – The returns on Investmentslike NSC, FD, are taxable so care should be taken that you don’t choose these investments.
3. If you are choosing Life Insurance – then go only for online Life Term plans and only if you have dependents
4. Don’t choose options in greed of higher returns – mostly ELSS and ULIPS are aggressively sold with showing a high return earning instruments – Understanding the underlying Risk for such instruments is recommended before committing to it.

Conclusion :

To keep things simple you should simply contribute additionally to your EPF by requesting your employer, the other better option would be to open a PPF account with a Bank and contribute to it the amount required to be invested for Tax saving.

Under section 80C of the Income Tax Act 1961,you can claim benefit for certain payments made and certain investments that are eligible as below.

Payment Options :

• Children’s Tuition Fees
• Stamp Duty and Registration charges for New House
• Repayment of Home Loan Principal
• Life Insurance Premium

Investment Options :

• Contribution to EPF (Employees Provident Fund)
• Contribution to VPF (Voluntary Provident Fund) additional contribution to above
• PPF (Public Provident Fund)
• NPS (National Pension Scheme)
• NSC (National Savings Certificate)
• 5 Years Bank Fixed Deposit
• SCSS (Senior Citizen’s Savings Scheme)
• SSY (Sukanya Samruddhi Yojana)
• ULIP (Unit Linked Insurance Premium)
• ELSS (Equity Linked Savings Scheme)

The youngsters while choosing any option should focus on the following

1. Use option which does not require you to have a Fixed recurring commitment every year – so that in future when you will be having default payments like HomeLoan repayment or children’s Tuition fees you need not have to pay additional for Tax saving.
2. Use option whose return is Not taxable or is less taxable – The returns on Investmentslike NSC, FD, are taxable so care should be taken that you don’t choose these investments.
3. If you are choosing Life Insurance – then go only for online Life Term plans and only if you have dependents
4. Don’t choose options in greed of higher returns – mostly ELSS and ULIPS are aggressively sold with showing a high return earning instruments – Understanding the underlying Risk for such instruments is recommended before committing to it.

Conclusion :

To keep things simple you should simply contribute additionally to your EPF by requesting your employer, the other better option would be to open a PPF account with a Bank and contribute to it the amount required to be invested for Tax saving.