Question: At age 35, my monthly income is Rs. 80,000. My monthly expenses are Rs. 40,000. How do I build a retirement corpus of Rs. 5-8 crore & also buy a health insurance plan for me & my wife?

Answer: To create wealth for a long period is important. Apart from that, you also need to plan your retirement as well as other financial goals for the coming years. Long-term planning requires regular savings, which then results in compounding. The process of compounding  begins when the interest starts earning interest. Its effectiveness increases with the length of the investment period.

For example, a person saving Rs. 40,000 per month for 20 years will earn a principal saving of Rs. 96 lakh. If we assume an average return of 10%, the corpus may become Rs. 3.06 crore  during the same period. The corpus will reach Rs. 4 crore if we assume the average return to be 12% and will touch Rs. 6.06 crore at an average return of 15%. All these figures are obtained without considering any increment in savings. If you assume a savings rate of 5% per year or increase the savings in the same proportion as the hike in your salary, the corpus will cross Rs. 4 crore, assuming an interest rate of 10%. 

This sounds easy but the reality is different. You may earn the targeted interest rate over a long period. However, in between, there would be periods when the earning rate is below the inflation rate, managing which are hard.

The allocation of assets should be done as per the targeted earning as it is higher than the inflation. Select from the asset classes that outperform inflation over a long duration. You can opt for Mutual Funds for long-term investments, but they being a volatile asset class need to be held for a long time. The best way to bring discipline and consistency in regular savings is to choose Systematic Investment Plans (SIPs).

Ensure to have adequate life insurances in order. The insurance amount should be 7-8 times of the annual income of the earning members of the family and this needs to be periodically reviewed. The next in the line is medical insurance. Check all details related to the services covered, immediate coverage, waiting period, network hospitals, sub-limits, co-payment, pre- and post-hospitalisation expenses, no claim discounts, cover ceasing age, and option to upgrade the sum insured before you choose the insurance company.

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Creative: I want to save taxes on Rs. 50,000. Should I invest in NPS or equity MFs?

Answer: NPS is one of the better products available in market in order to plan for your Golden Years. It is usually compared with provident fund. Employees’ Provident Fund (EPF) and Public Provident Fund are considered to be debt-oriented products with fixed returns. As compared to them NPS gives higher returns over the long term due to the provision of allocating 50% to equity in its portfolio. NPS is taken superior to many insurance-linked retirement products too being less expensive and by investment product in nature.

NPS, in comparison to Mutual Funds-oriented retirement solutions has its own merits. The long-term lock-in that NPS has protects an investor from premature withdrawals and the fixed nature of its index-based equity exposure rescues him from selecting between various funds and maintaining a portfolio through the years. Thus, it becomes beneficial for an investor who wants a low-cost, low-maintenance and pure investment retirement product. Mutual Funds offer high returns for disciplined investors and for those who can, either by themselves or with the help of an adviser, manage a retirement portfolio. 

However, investing in NPS or such instruments purely for tax deductions will do no good. The right approach is to first analyse if NPS fulfills your retirement needs or not and if so, use tax incentive as a fillip.

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If you want insurance go to an insurance provider, for mutual funds go to a mutual fund house, for stock markets go to a stock broker. Then there are loans. Too many offices and hassle, isn’t it?

Now what if we told you there is a one-stop shop for all your financial needs? It is true, and the best part is, it is cheaper in the long run to work with a financial services company than all the agencies mentioned earlier.

What do they offer?

• Insurance: They can offer products from a wide variety of insurers, both in life and general insurance categories.

• Mutual funds: You will be suggested the best mutual funds suited specifically to your financial requirements.

• Stock broking: You can operate your trading and demat accounts and get related services from a single point.

• Portfolio management: Let professionals decide where best to invest your capital across different asset classes.

• Loan management: You don’t need to meet different lenders for the best loan. Through the loan providers associated with them they offer what you need- student loan,    housing loan, vehicle loan, personal loan etc.

• Debt servicing: You are guided on how to allocate regular payments to service your debt and track your credit score.

• Investment Advisory: If you’d like to be actively involved with your finances but need expert opinion, they guide you.

All the financial services under one roof provided by professionals- get rich easy.

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