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While we all have a lot of hopes, dreams, and ambitions growing up, retiring on a quiet beach or in a cozy hill-station is the ultimate happy ending to whatever your life story has been up until now. Unlike in most fairy tales and movies where people grow old and automatically live happily ever after, retirement in real life takes proper planning and a lot of discipline.

Retirement Planning

Keeping in mind the fact that India has no social security schemes or any other kind of government-sponsored elderly care, you’re basically left with three to four choices at best. While option one is to plan and invest for your retirement right now, the alternatives range from compulsory work post the age of 60, depending on your daughter or son, and in extreme circumstances, even living on charity. While the obvious choice here is option one, we have to factor in a number of elements such as your present age, no of years to retire, present income, expenses, and more.
Other variable factors may include family members who are dependent on your income as well as your risk-taking ability with regards to investments. Further complications include life expectancy on the rise due to advancements in medicine, as well as technology, healthcare services, and expenses taking a similar curve. This means that if the plan is to be completely self-reliant, not only do we need to account for a longer period post-retirement, we also need to account for inflation that could easily see expenses go up by 3-4 times exponentially during our retirement phase.
So how do people plan for a dignified and independent retirement while also factoring in the inconsistencies of life? Well, there are two methods followed globally, they are the replacement ratio method and the expense method.

Replacement Ratio Method
The replacement ratio method is quite simple and similar to how a government pension is calculated. For example, a person who is 45 years of age earning five lakhs a month right now, and set to retire in 15 years would earn 10 lakhs a month by the time he is 60. This is calculated keeping in mind a 5% increase in income year on year. Using this replacement ratio method, he can then choose between a replacement income of 50% (5 Lakhs), 75% (7.5 Lakhs), or 100% (10 Lakhs) for the rest of his life.

Expense Method
As the name suggests, the expense method is all about calculating expenses. As a more customized approach that’s tailor-made to each individual, the expense method helps plan for retirement by calculating all the expenses of the entire family while also factoring in future expenses taking inflation into consideration.  For example, a person aged 40 with a monthly expenditure of about Rs.1 lakh, would have a monthly expenditure of about Rs. 2.25 lakh by the time he retires based on a 4% inflation, year on year. Similarly, expenses need to be calculated for every year that we’re retired, while accounting for inflation, all the way up to the age of 85, 90, or even 100. The tricky part, and this is where planning comes in, finding the present cost of investment to meet our forecasted future expenses.

As the saying goes, “the early bird gets the worm,” and this is no more evident than in our daily lives commuting to work. It’s when we’re late that we tend to make mistakes, break rules, jump traffic signals, or generally indulge in risky behavior. The same concept applies to retirement planning and it’s when we start investing early that we can afford to reach our targets by predetermined milestones, safely and without taking any risks. Think of your bank balance as correlating to your time left on this earth, if you have enough money left, you have enough time left, and you can even afford to stop and smell the roses.

In conclusion, the benefits of retirement planning are:
1.Dignity post-retirement.
2.Independence, freedom, self-reliance.
3.More options as to where you would like to retire (The Bahamas, Cabo Beach, Bali etc.)
4.The ability to be an asset to your family rather than a liability in your old age.
5.The ability to pay for expensive medical treatments or procedures without help.
6.Peace of mind not only for yourself, but for your spouse and children as well.
7.Last but not least, guaranteed quality of life post-retirement.

With rising inflation, reducing interest rates in our country, and the current situation in the world being the way it is, unless you plan to inherit a fortune or pull off a money heist, it’s time to start planning and investing. Like we mentioned earlier, the replacement ratio method is a great first stepping stone and gives you a good idea of where you’re at and where you need to be. Please remember, keeping a track of your expenses and being aware of how much you need to save is half the battle won, the rest as we already mentioned, is just discipline.

Hi readers, hope our previous article on wealth management and the various strategies associated to it was genesis to your financial discipline. This week, we would like to take you through the importance of nomination in any form of investment/saving choices you make.

As of 2018, the amount of unclaimed deposits in Indian banks and insurance corporations accounts to 34,000 crores INR. And the trend continues to grow north each year. The major factor that contributes to the accumulation of unclaimed money is failure of a nomination or the nominee being unaware of such deposits or investments made.

I am sure your hard earned money does not deserve to go unclaimed and a simple act of choosing to enter a name in the nomination column would ensure that your loved ones gets the benefit of your investments/savings in the event of an unfortunate departure.

What is Nomination?
Nomination in banking/financial terms refer to the process through which an account holder executes his right to appoint a person as the one who is entitled to receive the monetary benefits accrued out of an investment or saving venture in case of death of the investor or the account holder. And this simple and easy step would ensure the very purpose for which the savings/investment was started is served. It is an ideal way to lessen the hardships of the legal heirs in settlement of claims expeditiously in the event of the death of the account holder. A nomination can be typically done either at the time of opening of the account or at any subsequent time during the tenure of the account/investment. There are certain specific nominations forms that you need to complete and submit to the Bank/ Investment for completing the nomination.
 
Who is a Nominee?
A nominee is a person who is selected as the beneficiary for the savings/investments made by the investor or the account holder in the event of death of the account holder. However, you can have multiple blood related person as a nominee for your various accounts/investments.

Who can be a Nominee?
You can nominate any of the below-mentioned members of your family.
   
• Spouse
• Mother
• Father
• Son
• Daughter
• Brother
• Sister

Why is nomination critical?
Nomination enables your loved ones, access to your savings/investments in the occurrence of the eventuality without any hassles and delay at a time when they would be in most need of it.

Things to remember while nomination

Do mention the nominee’s name instead of addressing only their relationship with you (Mention the full name, age and address).
While nominating a minor as a nominee, appoint a person who is a major as a guardian giving his full name, age, address and relationship to the nominee.

What if you have failed to nominate already?
You do not have to worry if in case you have failed to do so. You still have the option to add nominations at any time during the tenure of your investment/savings. Please ensure that your nominee’s information are filled up accurately in the nomination form to avoid any later hindrances for the nominee. Also a nomination can be cancelled or changed by the account holder/investor anytime during his life.
Hope this article was helpful to you in understanding the importance of Nomination in any investment or saving endeavor. We will catch up again with another interesting topic that will help you to make progress in your financial goals. You can also let us know which topic you would want us to write in the comment box below.

Hi Readers,
Hope our previous article on the importance of Nomination was informative and useful for some of you. If you have not yet had the chance to read the same, you can find it here.
This week, we would like to share our thoughts on Gold – India’s evergreen love.

Gold – A metal that is most popular among the ornamental metals has never lost its glory. And the global pandemic is no exception. As a passionate investor, many of you might have already been into gold already. However, the following article will help you make an appropriate investment choice in gold that is tailored for you.

Why Gold is precious?
Being a derivate product of a natural resource, gold like oil resources is not abundant. The reasons people tend to make a gold investment are also diverse, as gold is simply ingrained in some cultures as a form of wealth and saving, whilst in other countries and for other individuals, it’s more about hedging financial market risks, as well as wanting to hedge against rising inflation.

Advantages of Investing on gold

Immune to inflation
Gold has historically been an excellent hedge against inflation, because gold has an immune system that withstands the tremors of a global economic crisis. Over the past 50 years global investors have seen gold prices soar.

High on demand - In spite of holding an uptrend in market price most of the times, the demand for this metal superstar has always been there no matter what. The most important reason is that Gold is held prestigious in many cultures of the world, especially in countries like India where almost no auspicious moments are complete without the presence of gold.

Liquidity - Another factor that makes your choice of investing in gold is its liquidity. In any investment, the ease with which you can buy and sell an asset plays an important role, and with over USD $100bn in daily commodity trade is one of the easiest of assets to buy and sell at any time.

Diversification - The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:
 
• The 1970s was great for gold, but terrible for international stocks.
• The 1980s and 1990s were wonderful for stocks, but horrible for gold.
• 2008 saw stocks drop substantially as consumers migrated to gold.
 
Source: www.goldprice.org

Historical Gold Performance

In the year of 1974 the gold index was formed 1 ounce (28.35 grams) = 100 US dollars. If you see the above the chart from 1974 – 1981 the gold price moved from 100 USD to 850 USD which is a compounded annual return of 35.7% after which gold price hit a bottom of 350 USD in the year 1983. If you see the chart closely from 1983 – 2002 for about 19 years there was not much appreciation in gold price. In another analysis from 1981 – 2008 in fact gold was underperforming, there wasn’t any appreciation, having said that gold has delivered a positive return of 7% per annum since inception.

Why this international correction has not had a greater influence on the gold price in India?
In spite of the fluctuations in international gold price, it did not had any impact in India as the Indian currency (INR) has been depreciating consistently against the US dollar year on year that negated the depreciation of gold price and made gold prices to not fall down in accordance with international gold price in India. You can see the chart below for the years 1973 – 2020 how the US dollar has appreciated against Indian currency year on year.
1973 - 1 US Dollar = Rs. 7.63
2020 – 1 US Dollar = Rs. 73.77

Source: https://www.chartoasis.com/usd-inr-historical-data-download-cop0/

Types of Gold Investments

Physical Gold- Jewelry, Coins and Bars

Gold Exchange Traded Funds (ETF) and Exchange Traded Commodities

Gold Funds – Investment made in gold mining companies

Should you start investing in gold?

The answer is yes, you must allocate certain amount of funds periodically to invest in gold as an asset class. However, the percentage of investment in gold or any other asset for that matter varies from one individual to another. You need to customize your investment based on your overall income, expenditure, short term and long term goals.
So far, we saw the historical performance of gold, benefit of investing in gold and types of investment options available in gold as an investment. Our next articles we shall take a detailed look in to the Gold exchange traded funds and gold mutual funds.
 You can also let us know which topic you would want us to write in the comment box below.

Greetings,
We hope you found our previous post on the Overview of gold investment and its historical performance both useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out!

Is your life insurance airtight?
Many consider insurance as the first step to building a savings portfolio, after all, there’s nothing as important as securing what you already have, beginning with the most important asset, your life. Life insurance salesmen are quick to ask the question “what would life be like for your dependents in the case of your untimely demise?” What most of them fail to tell you, however, is that if an unfortunate event does occur when you happen to be in debt, it’s your creditors who are going to benefit from your policy and not your wife or your children as you intended. That’s a pretty terrifying thought since the one thing that gives a person peace is a knowledge that the people who you care about will be looked after once you’re gone.

To elaborate, say a particular businessman passes away leaving behind about ten crores of debt ( outstanding loan) but also invested about  20 lakhs in life insurance for about 15 years which would mean his wife/or children would receive somewhere around 4-5 crores. In such a case the entire payout would go towards repaying the debt, along with any other assets he may have left behind, till the amount is recovered. This leaves us asking the question of whether there is no way for a man in debt to secure his family’s future or invest in life insurance without the proceeds being snapped up by creditors?
Well, of course, there is it’s called the Married Women’s Property Act or MWP Act and was originally set up in order to protect properties owned by women. Section 6 of this act covers life insurance policies and is the part that is most relevant today. According to this section, any married, divorces or widowed man can take a life insurance policy under this act which will cause said policy to automatically function as a trust under the Trust Act. While the trustees can be your doctor, chartered accountant, Advocate or financial advisor and the trustees can be changed at any time, the beneficiary ( wife& children ) can never be changed.
What does this mean, if you have any money invested in a life insurance policy under this act, in addition to it being safe from your creditors, even a court of law cannot attach it to any recovery of outstanding loan in case of your death. Furthermore, even in the case that you outlive the policy, the proceeds will still go to the beneficiary, making for a pretty airtight way to secure your wife and children’s future. A good rule of thumb before making such investments is to consult with a financial advisor or do some research on the human life value method or the capital need analysis method to figure out the ideal insurance cover for you.
If you enjoyed reading this post, please leave a comment or a suggestion on what financial topic you would like to read about next.

Greetings,
We hope you found our previous post on the Married Women’s Property Act useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out.

What a lot of people don’t realize while planning out their retirement is that interest rates for developing countries go down as they progress and develop. If you were sitting around thinking people in the US, UK, Sweden, Switzerland, or any other first-world country for that matter, were raking in big bucks on money sitting in the bank, think again. In fact, in some developed countries like Denmark and Japan, for example, they have negative interest rates and it actually costs you money to use the banks. Additionally, the US interest rate FED is just 0.25% at the moment, down by 1.25% from March this year.

What this means for pensioners or people planning their retirement is that in addition to accounting for inflation, they also need to account for lower returns on money sitting in fixed deposits or bank accounts. India for example, had private banks offering up to 8.25% for fixed deposits in 2015 while the current offerings stand at about 5.15% with an extra 0.50% for senior citizens. That’s a pretty sharp drop and means that if you were counting on interest rates remaining constant, you now have to recalculate and reconsider your retirement options.

A good way to counter the effect of declining interest rates on your retirement plan is by investing in schemes that offer a fixed interest rate over a longer time frame, this way whatever the current interest rate may be, your investment keeps earning at a predetermined rate. As we mentioned before, since rates go down as a country develops, this is a good thing. One such investment option for senior citizens, in particular, is the Pradhan Mantri Vaya Vandana Yojana (PMVVY) government-subsidized pension scheme.

While this scheme was initially announced a few years ago, it ended in March this year and was relaunched in May for a period of three financial years under new terms. In addition to a fixed interest rate over a period of ten years, this scheme also converts the interest into a pension that can be withdrawn monthly, quarterly, half-yearly, or annually. This is a great addition to your retirement portfolio as you can invest a maximum of fifteen lakhs per person which will provide you with a guaranteed monthly pension of Rs. 9,250/- for ten years. If you and your spouse invests fifteen lakhs each then you will receive a guaranteed monthly pension of Rs. 18,500/-

The cherry on the cake here is obviously the fact that in addition to ten years of fixed interest, you also get your principal amount back on maturation, making this a “win-win” situation. The rate of interest for policies purchased this current financial year will be 7.66%, while the interest rates for the remaining two years will be fixed as they commence. Life Insurance Corporation of India is the sole operator of this scheme which also includes a death benefit where as a beneficiary receives a refund of the purchase price in the event of your untimely demise.

In conclusion, with an unprecedented amount of uncertainty in the world today, having a constant source of income for a decade is an invaluable asset, albeit a small one. It’s many drops of water that form an ocean and every bit counts when you’re planning for your retirement. One downside may be the fact that you need to be at least 60 years of age and you have the option to surrender this pension plan under extreme circumstances like a medical emergency for you or your dependents. However, after completion of three years, you can avail of a loan against this policy up to 75% of the purchase price.

If you enjoyed reading this post, please leave a comment or a suggestion on what financial topic you would like to read about next.

Hi Readers,
Hope our previous article on the overview of gold investment and performance was informative and useful for some of you. If you have not yet had the chance to read the same, you can find it here. This week, we would like to throw light on the various investment options available for you in gold:

Physical Gold – An investment method that is most popular among Indians is direct purchase of gold in the form of jewelry, coins and bars, compared to the other forms of gold investments, investing in physical gold still remains a popular method to invest in gold. You can buy physical gold and sell it when you need the money. But when you buy gold as jewelry, there is a downside of making & wastage charges to it which may vary between 8% - 18%.

Digital gold – This is a new investment option that has been on the rise in recent time due to its easy access. You can  purchase digital gold through the following apps:
Paytm, Phone pe, Google pay, and Amazon pay. For example: Paytm has tied up with Kalyan Jewelers for the delivery of physical gold or jewelry. Digital gold allows you to buy and sell gold at market price anywhere anytime. Each gram bought by an investor is backed by an actual physical gold in the vault by the vendor, which can be easily sold back online at market-linked gold rate.

Right now, there are three companies offering digital gold—Augmont Gold; MMTC-PAMP India Pvt. Ltd, a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP; and Digital Gold India Pvt. Ltd with its Safe Gold brand.

Downside: The price of the gold is higher than the MCX gold. It’s because there are three types of charges levied, convenience fee, trustee fees, storage fees additionally 3% GST and there is no regulator to look after this investment and the companies involved.

Gold Fund - Gold funds are a type of mutual funds that directly or indirectly invest in gold reserves. The money you invest in gold fund is used to invest in stocks of gold producing, distributing and gold mining companies. It is a simplest way to invest in gold without having to purchase it in its physical form. This investment reduces the risk of loss due to market fluctuations that accompanies the direct investment in gold. Gold mutual funds are ideal for investors who would like to diversify their portfolio and save them against the potential risk of loss from other investments. There are so many gold funds available right now in the market.
 
GOLD ETF - A Gold ETF is an exchange-traded fund (ETF) that aims to track the domestic physical gold price. They are passive investment instruments that are based on gold prices and invest in gold bullion. Gold ETFs are units representing physical gold which may be in paper or dematerialized form. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. Gold ETFs offer both the flexibility of stock market investment and the simplicity of gold investments.

Gold ETFs are listed and traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd (BSE) like a stock of any listed company. Gold ETFs are traded on the cash segment of BSE & NSE like any other company stock, can be bought and sold continuously at market prices.

In short, buying a Gold ETF would mean, purchasing gold in an electronic form. You can buy and sell gold ETFs just as you would trade in stocks. However, when you redeem Gold ETF, you don’t get the physical gold, but receive the cash equivalent of the quantity of gold. Trading of gold ETFs takes place through a dematerialized account (Demat) and a broker, which makes it an extremely convenient way of investing electronically in gold. Gold ETFs offers complete transparency of its holdings because of its direct gold pricing. Further, due to its unique structure and creation mechanism, the ETFs can lower your selling expenses as compared to physical gold investments.
Source: https://www.amfiindia.com/

Gold Sovereign bond - Sovereign gold bonds are RBI mandated certificates issued against grams of gold, allowing individuals to invest in gold without the burden of protecting the same. To know more about sovereign gold bonds, please read our earlier article on the same here.

Hope this article was helpful to you in understanding the investment opportunities in gold. We will catch up again with our insights on ‘Human Life Value and the science behind it’ which will help you to make progress in your financial goals. You can also let us know the topic that you want us to write about in the comment box below.