Feeds:
Posts
Comments

Posts Tagged ‘bonds’

Over the weekend there was news that RBI Governor Raghuram Rajan’s term is ending on 4th September 2016. The market clearly does not like surprises, and therefore the impact could be short term volatility in currency,equity  and bond markets. Thus, whilst this is clearly a short term impact to India’s image in the international community and financial investors, we believe there is a list of very eligible candidates who can be appointed. In fact, the events over the weekend are likely to get the government to move much faster on finding an approprite replacement, and thus we believer there is no need of changes in your investment portfolio as a result of this. Ultimately, we believe that institutions are typically bigger than their chief executive.

The event which is likely to have a much bigger impact is the probability of Britain moving out of the European Union.  Over the last couple of weeks, there has been significantly higher newsflow around Brexit and the importance of 23rd and 24th June for world markets, due to the Brexit. Let’s understand the possible impacts of Brexit on your personal finances.

Doc3

What is Brexit?

The European Union has 28 countries as its members. European policies currently aim to ensure free movement of people, goods, services and capital amongst its member states. Out of these, 19 members use Euro as its currency. Britain which is one of its members is evaluting whether it needs to stay in the EU or exit. That’s why it is termed as Brexit – ‘ Britain Exit’.

Bexit and your investments

There is a possibility of largely two scenarios in the referendum on the Brexit, that is,  either a leave or a stay. Let’s examine the impact of each of these on your investments separately. As indicated, this will be decided on the basis of a referendum which is going to be held on 23 June – a final decision will be taken on the basis of the votes.

Scenario 1– Leave

  • Depreciating Pound and Euro / Strengthening Dollar and Yen– Thus, if you have kids studying in the UK or planning to study there, you couldend up paying lesser.
  • Strengthening Dollar

The US dollar could then be expected to strengthen in the short term as investors will rush to Dollar as a safe investment vehicle. If you have any dollar denominated investments then those will increase in value.

  • Sell off in the emerging markets

In the short term emerging markets including India , as well as UK and European markets, could experience volatility due to flight of capital to safety . However, the expectation is that impact on India will be lesser compared to the other emerging markets due to its realtively stronger fundamentals. Thus, if you have investments in emerging markets then those might see temporary fall in returns. Do not panic and sell. Over the longer term, the performance of your emerging market funds will depend on the economic scenarios of the individual countries to which your fund is exposed to, apart from the temporary brexit effect.

  • Gold could become attractive

Gold is gaining importance as an  investment vehicle with rising global uncertainties. Therefore, Gold Exchange Traded funds, Gold funds and sovereign gold bonds could benefit from this price rise of gold, as well as strength of the US dollar.

Scenario 2- Stay

  • Equity markets could react positively

This will ideally mean increase in the value of your equity investments since world markets could do well, as the overhang of the Brexit has led to signficant market volatility over the last few weeks. A relief rally could follow, especially as multiple other EU countries are also at this point looking to see what the UK does with the Brexit.

  • Bond markets could be stable

If the brexit does not take place there may not be any selloff in the bond markets which means the yields could remain as is. The higher inflation ovehang on domestic bonds is likely to be the driver of bond prices going forward in that case.

  • Euro/Pound sterling could strengthen

There will be increased confidence in European markets and Euro could appreciate. Your Euro denominated investments could do well in this case.

All in all,

Since the outcome is hard to call currently, one may need to track this event carefully, and decide you investment strategy carefully basis the outcome of the referendum. In the short term volatility may be expected to be higher than normal, but do not take panic calls and stick to your asset allocationand overall financial goals and plans.

 

 

Advertisements

Read Full Post »

Asset Allocation should also include global stocks and mutual funds as a diversification strategy is always better. Its always good to get the best of all global markets.

Break your home bias-page-001

Read Full Post »

Returning Indians

Read Full Post »

The year 2014 was mostly a year full of positive events for Indian financial markets which caused the equity markets (BSE Sensex) gaining close to 30% in 2014 . Some of the major events that took place are as follows and our outlook in 2015:

  1. Historical electoral results – A strong, pro- growth oriented and business friendly government looks good for economic growth and for businesses. This promise has to translate into big reforms on the ground as most of the early work has been focused on getting the bureaucracy and decisions that were deferred forward.
  2. The GDP growth for Q3 2014 expanded to 5.3% from 5.7% in Q2. It is expected to pick up further to 6-6.5% YOY in FY16 with growth over other parts of the world remaining subdued and hence the gap of India GDP Growth with Global GDP growth is expected to widen as seen from the data below:

1

Source:  IMF, credit Suisse Research, Dec 2014

  1. Current Account Deficit (CAD) widened in 2Q FY15 due to widening of trade deficit. However, it is expected to be in a comfort zone in FY16 with falling crude oil prices offsetting high import growth of non-oil and gold.

2

Source:  RBI, Citi Research, Dec’14

  1. Fiscal Deficit for the first 8 months of FY15 (Apr-Nov) came in at 99% of the budget estimate of 4.1% for the full fiscal year. Whilst it is still possible that the government could achieve the target by controlling spending for this year, the fiscal deficit target of 3.6% of GDP in FY16 could be difficult to meet.

3

Source:  Budget Documents, Citi Research, Nov’14, BE=Budgeted Estimate

  1. Earnings Growth: The private sector in India remains in a deleveraging cycle, saddled with excess debt. However, Corporate Earnings should be better than estimates as corporate margins are significantly below the long term averages and should improve gradually as capacity utilization and business conditions improve in the next 2-3 years which is when the full impact of lower interest costs and softer commodity prices will show up in corporate profits.

4

Source: Motilal Oswal Research, November 2014

The outlook for equities in 2015 could be challenging, but things look promising from a longer term perspective and there is merit in increasing allocation to equities in a phased manner and staying invested. However, every investor should look at their own specific asset allocations rather than specific asset class performances.

  1. Inflation declined to a series low due to lower commodity prices, slowdown in consumer demand, low growth in MSPs and falling oil prices. CPI inflation eased to a series-low 4.4% in November 2014 from 5.5% in October 2014 in year-on-year (y-o-y) terms. This primarily reflected a sharp decline in food inflation to 3.6% in November 2014 from 5.7% in October 2014, as well as a fall in core-CPI to 5.5% from 5.9%. In fact, WPI inflation declined to 0% in November 2014.

5

Source: CSO, ICRA Research

In the December Policy review, RBI kept the rates unchanged and revised the CPI target to 6% for March 2015 and also as per RBI, the risks to the Jan 2016 CPI target of 6% looks balanced. There could be concerns during the first quarter of 2015 as RBI waits for certainty with regards to lower/stable inflation, and fiscal adjustments during the budget before commencing any monetary easing and interest rate cuts. Global concerns over interest rate hike in US and movement of global crude oil prices will also keep investors guessing on the direction of interest rates in India.

Fall in inflation and slow economic growth would lead to cut in interest rates in future. As seen from the chart below, bond yields have moved sooner than policy rates more often. Currently also, the yields have fallen in anticipation of a rate cut.

6

Source: RBI, Bloomberg

RBI is also targeting a real positive return on interest rates to potentially move savings from physical assets to financial assets. This could mean that a 6% CPI inflation would synchronize with a 7% repo rate – which means a 100 bps cut in repo rate over the next 18 months.

Investors will need to have a sufficiently long time horizon ( 12-24  months) when investing in duration strategies now, especially given that the first 25 bps of the expected cuts are perhaps already in the price.

Thus, we would recommend continuing to stay invested in a portfolio with a mix of longer maturities and accrual funds, which are likely to benefit as interest rates are expected come down in the next 18-24 months.

  1. The global equity markets also continue to perform well with US markets reaching new highs. Crude oil prices corrected to a 5.5 year low due to significant new supply of shale gas from U.S., slowdown in global demand, and a reduction in per unit consumption in automobiles due to better and efficient technology. So, there’s enough reason to believe that oil prices will remain favourably low. Obviously, a sharp drop in oil prices can potentially create some pressures in oil exporting countries like Russia and in market players who were perhaps overextended in trading.

Also, lower oil prices reduce inflationary pressures and current account deficits allowing emerging market central banks greater freedom to stimulate domestic economies.

We think 2015 is going to be a year of divergence in economic growth and central bank policy. While the US is leading developed markets growth, Europe and Japan are struggling for growth at this point of time and China is still in search of its sustainable growth formula. So we could have central banks across the globe moving in a de-synchronized manner where US is looking to normalize its interest rate structure, while Japan and Europe will still continue to adopt loose monetary policy conditions to fight deflation in their economy. This divergence in policy action will increase market volatility and require investors to pay more attention to risk management.

  1. Currency: Dollar strength and one of the drivers of this trend is the shale gas revolution which US is experiencing and its impact on shrinking the US economy’s current account deficit. This could pose some challenges for emerging markets but stronger fundamentals should limit the financial risks for those emerging market which have already gone through a course correction over the last 18 to 24 months.

Hence, we continue to reiterate to build a well diversified portfolio with having exposure of between 10-15% into international investments to hedge against currency risk.

  1. Gold prices could continue to remain under pressure in the short term due to the fear of interest rate hike in US. Whilst the INR currently looks a little overvalued and is expected to depreciate, Gold as an asset class could gain value as it has an inverse relationship with the Indian currency traditionally.

Hence, we continue to believe to have gold as small part of the portfolio for the purpose of diversification and hedge currency risk.

Read Full Post »

Indian Equity markets once again touched all time highs by crossing the 28500 level on the BSE SENSEX due to various reasons like structural reforms made by strong government, weak commodity and oil prices, inflation easing further, improvement in macros and continued foreign flows on the back of strong  liquidity conditions overseas

Equities:  The CNX Nifty and CNX Midcap increased by approx. 6% in the last one month. The local market sentiment has remained buoyant through the last few quarters as the market anticipates a strong domestic recovery and lower interest rates in an improving policy environment. Various macro factors like GDP growth, Current Account Deficit (CAD), Fiscal deficit (FD), IIP, WPI and CPI are showing an encouraging trend in FY 2014-15, compared to last year FY 2013.

Featured imageSource:  Citi Research, HDFC MF, Colored rows refer to yearly data; other represent quarterly data

Corporate margins are currently at cyclical lows, and though earnings are still to significantly pick up and may take a few more quarters, better managed companies are starting to show some traction. As corporate margins normalize from depressed levels and as interest rates move lower, current P/Es that look expensive could start to look much more justifiable.

However, it is critical to have a long term horizon for investors buying into equities as always, as there could be volatility in the short term, especially with a consensus positive view on India. A consensus positive view tends to be a good contrarian indicator very often, so having a long term view and holding some cash to buy on corrections could be a good idea.

Featured image

While the U.S. continues to normalize its monetary policies, the same does not apply elsewhere. To overcome weakness in Europe, China and Japan, the respective central banks are taking steps towards more monetary easing to stimulate growth in their economies.

Emerging Markets like India and China have adopted a more flexible exchange rate system, increased Foreign Exchange reserves and managed their external debt in an efficient way thus far.

Featured imageSource: MSCI, Credit Suisse, I/B/E/S, FactSet, J.P. Morgan Economics, J.P. Morgan Asset Management “Guide to the Markets – Asia.”

Investors should remain disciplined in maintaining a well-diversified portfolio by investing across domestic and international equities. A global economic recovery should favour equities, especially emerging markets like India and China that are likely to benefit from a global recovery.  Both emerging markets and developed markets should benefit as a result.

Over the long term, the INR should continue to depreciate vs. the USD at nearly the rate of inflation differential between India and US (last 30 years CAGR of INR depreciation vs USD is 5.5 %; inflation differential between India and US is 4.8%). Therefore, we continue to recommend building international exposure in the portfolio for the purpose of diversification and act as a hedge against currency risk.

Fixed Income: While the equity market is on a high, there are good investment opportunities that we foresee in the fixed income market. There are various factors that impact inflation and the table below shows that they are moderating:

Featured image

Investors should start looking at bonds and bond funds (a combination of short, medium and long term options would be recommended, depending upon investment objectives and risk appetite) as a means of hedging their future reinvestment risks.

Globally the gap between US &Indian interest rates is currently high, yet, a sharper than expected reversal in US interest rates could lead to volatility / challenges for the Indian fixed income markets as well. Foreign portfolio flows into debt have also been at a high for many months now, as can be seen from the graph below, and thus investors need to be cautious about any reversal in fund flows. Thus maintaining a long term view on fixed income investments (18-36 months) wouldalso be crucial.

Featured image

CPI inflation eased to a series-low 5.5% in October 2014 from 6.5% in September 2014 in year-on-year (y-o-y) terms.  This primarily reflected a sharp decline in food inflation to 5.8% in October 2014 from 7.6% in September 2014, even as core inflation was unchanged at 5.9%.

Featured image

Source: CSLO, ICRA Research

However, RBI may not cut the rates in the upcoming monetary policy in December unless they are very sure of achieving CPI inflation target of 6% by January’2016. In addition, it may want to reward investors with continued positive real returns of between 1%-1.5% p.a. over and above inflation, which should help monies move from physical assets like real estate and gold to fixed income instruments as well.

Gold: Gold may continue to see downward pressure globally, with weak commodity prices, and less fear amongst global investors. The government has removed gold import restrictions in spite of the fact that gold imports went up significantly in the last festive month to $3.75 billion. Hence, allocating only a small portion of your investments into this asset class continues to be a good strategy in our view.

We came across a very interesting table recently showing the returns on CAGR basis and the risk measured by standard deviation over 1, 3 and 5 years holding periods of the BSE SENSEX, 1 year SBI Fixed deposit (FD) and Gold in INR terms for the last 30 years:

Featured imageSource: Bloomberg, HDFC MF

As you can see from the above data that:

FDs vs Gold: Fixed deposit returns are very close to the Gold returns in the last 30 years; however the volatility or risk in gold is much higher compared to the risk in FD. Hence, Gold is not a superior option compared to FDs to invest in from a risk perspective.

Equities vs Gold:  Long term returns on equities are much higher than returns on gold (appreciation in Sensex was 5x of gold*). Volatility of equity returns is high but to a lesser extent (3x over 3 year holding periods and 2x over 5 year holding periods). Equities are therefore a superior asset class compared to gold for long term investments and for those with tolerance to volatility.

Featured image

Read Full Post »

India equity markets celebrated Diwali in style, with the Nifty regaining the 8,000 mark and the Sensex moving above 27000.

There was plenty of positive news flow from India like the Government announcing a series of policy reforms including diesel deregulation, gas price hikes and e-auction of the cancelled coal blocks. The victory of the BJP in the Assembly elections in Maharashtra and Haryana too buoyed sentiments.

Equity:

Nifty increased by 1.02% whereas CNX Midcap increased by 1.44% during the month.

The Price to Equity ratios continues to show that equity market valuations are above 20 Year average and it is therefore critical to see earnings pick up to justify current valuations . Early signs show that it is starting to happen as you can from the chart below on both PAT and EBITDA margins for Nifty companies:

123

2

Source: Motilal Oswal Research, 2014

In the graph below it is very clear that investment growth has picked up recently in India compared to some of the other emerging markets (like Brazil, Russia and Mexico), but needs to rise further for economic growth to improve structurally.

3

Source: Morgan Stanley Research, October 2014

Global economic growth woes continued – the IMF downgraded its economic outlook on the globe due to weaker than expected global activity in the first half of 2014, along with ongoing Middle East tensions, the Ukrainian and Russian standoff, along with the Hong kong political unrest. The new epidemic disease Ebola is also a big concern in U.S, African and European countries. News from Europe also continues to be challenging. The US ended its bond buying program but maintained its stances on keeping interest rates low for a considerable period, in line with market expectations. Whilst it is very tempting to move to a 100% domestic portfolio in this environment, we continue to recommend to have at least 10% of the portfolio invested globally for the purpose of global diversification, as well as act as a hedge against currency risk.

With projections of GDP growth of 5.5 percent in FY 2014–15 and 6.5 percent in the following year, Q2 2014 GDP growth came at 5.7%, above the consensus expectations. We believe that the Indian economy is on the cusp of a growth uptrend and this will contribute to growth in corporate earnings as we have shown in our charts above in this article and hence will justify strong performance of Indian equities, especially with oil and commodity prices coming off. However, it is critical to keep you asset allocation intact.

4

Source: MSCI, Credit Suisse, I/B/E/S, FactSet, J.P. Morgan Economics, J.P. Morgan Asset Management “Guide to the Markets – Asia.”

Fixed Income

CPI inflation eased to a series-low 6.5% in September 2014 from  7.8% in August 2014 in year-on-year (y-o-y) terms and Core-CPI inflation (excluding food, beverages & tobacco and fuel & light) declined significantly to a series-low of 5.9% in September 2014 from 6.9% in August 2014 (refer chart below)

5

Source: CSO, ICRA Research

Inflation related to fuel & light moderated to 3.5% in September 2014 from 4.2% in August 2014 in y-o-y terms. Softening of prices of various commodities including crude oil and domestic fuel prices would benefit the CPI trajectory in the near term and hence we continue to expect the Reserve Bank of India’s (RBI) January 2015 target of restricting CPI inflation below 8.0% to be achieved.

Nevertheless, the probability of a Repo rate cut in 2014-15 remains low, as the RBI is likely to continue to focus on containing inflationary expectations to improve the likelihood of restricting CPI inflation below the January 2016 target of 6.0%.

The below chart shows the Interest rate differentials between US and India:

6

Source: Axis Mutual Fund

There is a fear that higher US rates will draw FII money away from India. This is not borne out by history. During 2004-06 even with rate hikes money continued to flow into India from FIIs. Secondly, back in 2004 at the start of the cycle, US rates were at 1% and Indian rates were at 4.5% implying a 350 bps differential. By the end of the Fed rate hikes, the rates were respectively 5.25% and 6.50% implying a differential of just 125 bps. In contrast currently the US is close to zero (officially the overnight target is 0 to 0.25%), while RBI is at 8%, a differential of nearly 800 bps.

Hence, we recommend having the fixed income portion of the portfolio comprising of both accrual and duration strategies where accrual strategies will lock into current high interest rates and duration strategies will start benefitting once the interest rates start coming off over the next 12-24 months.

Gold:

Demand for Gold has seen a rebound in recent days in India and China. India celebrated Diwali, the biggest gold buying festival  which boosted physical demand for the yellow metal on support of low prices. Meanwhile, a surge in Gold imports pushed up the India’s trade deficit for September to $14.25 billion of which Gold imports accounts for $3.75 billion. This raises questions on whether there can be some quantitative restrictions or higher import duties put on gold , to bring down the demand. Hence, allocating only a smaller portion of your portfolio in Gold continues to be a prudent strategy.

Read Full Post »

Young and Carefree ? Plan for your sunset years

Retire Rich

Eight things you must know about retirement

New, young clients of mine, whom I’ll call the Kumars, visited my office.“With the hectic lifestyles that we lead,” Mr Kumar told me, “we’d like to retire when I’m 55, so that we may pursue our other interests, like travel and photography. And at 55, I’ll still be fit.” “Good idea,” I said, “I hope you’ll also be financially fit for that.”
They then showed me their file containing a neatly compiled list of stocks, mutual funds, insurance policies, bank FDs and suburban property they’d invested in. “So, what do you think?” asked Mrs Kumar after I had gone through the list. I admired their thinking about retirement even though the Kumars were only in their early 30s.Meanwhile, other average clients of mine put numbers to every one of their financial goals: house, car,children’s marriage and education,holidays… everything except retirement. I think it’s only because when people are young, even in their 40s,retirement seems too far away. But you’ll be surprised at the speed at which the good years go by.If you’re working today, retirement is quite a certainty—almost as certain as the bad old death and taxes.That’s why it’s critical to create a detailed plan, both from financial and emotional standpoints, and then go about executing it. And while you do that, there are eight truths you need to consider.

  1. Inflation is your enemy :
    The average annual rate of inflation in India has been about 7.6% during the last 25 years. This means most of the things you buy are at least six times more expensive than they were in 1986. That won’t change when you survive long enough to look back in 2036, after another 25 years.So, if you spend Rs40,000 per month today and plan to retire in 2036, wishing to maintain the same lifestyle,you might then need about Rs.250,000 every month. In fact the future may not even be so bright! Considering all the excess money that has been printed across the world since 2008 to tide over the global financial crisis, don’t be surprised if you’ll need even more spending money in 2036. “Quantitative easing,” the economic euphemism governments use to describe printing excess money, is a known inflation enhancer.And then there’s what’s called “lifestyle inflation,” which can happen as you earn more. Foreign trips replace your domestic holidays and parking in with relatives back in your native place. One car for the family becomes one car for each family member. You wore the same clothes for years, but you find yourself buying new ones every season. If all this sounds familiar,you’ll need loads of spending money even after you retire.
  2. You could live much longer than you think :
    Human life expectancy has steadily increased. A large number of us will end up spending as many years retired as we were working, maybe more. Some of my clients often disagree. They argue that the killer called stress, too, has increased. But then, medical advancements also increase dramatically, with newer stress, clot, cholesterol and cancer busters that help lengthen our lifetimes.Thus your retirement plan must address expenses over a much longer period, well into your late 80s, maybe longer. Factoring in inflation, those monthly expenses that could grow to `250,000 by 2036 may touch `15 lakhs if you survived till 2061, a “normal” 25 years after retirement. Scared? The “risk” of living very long is now very real. That’s why it’s essential to continue to make investments that will have the ability to beat inflation over long periods. Equity shares, equity mutual funds and real estate must be part of your investments, and good portions of them should be held even after you retire.
  3. Your retirement plan needs to be your own :
    Without batting an eyelid, one of my clients who had fixed financial goals for everything except retirement, told me, “My son is my retirement plan.” A very endearing thought. But with an increasing trend towards nuclear families, your retirement plan needs to be far more robust. Your children will have their own financial goals which may not include you. Remember the Amitabh Bachchan-Hema Malini starrer Baghban, where the old parents they portray are made to stay separately after retirement, since none of their children will take in both of them? If your account book has such a retirement plan in place, watch the movie, if you haven’t already. It may actually be better than the book.
  4. Buying pension plan is not a solution :
    Not long ago, the tax laws gave a separate annual benefit of  Rs10,000 if you bought certain pension plans. A very large number of people bought them for the tax benefit, and also in the belief that it will take care of their retirement. Yet, the amount they will receive on retirement will probably be enough for a couple of years’ expenses, nothing more. Any investment that you make for retirement need not have the word “retirement” in it. Stocks, bonds or good mutual funds can yield much better results and offer greater flexibility than the so-called retirement specific investments.
  5. Your Expenses will not halve when you retire :Over time and from my clients’ experiences, I’ve learnt that there is a tendency for post-retirement expenses to increase in the first couple of years, as the increased leisure time could result in more holidays and trips to the mall. It may decrease 10 to 20% afterwards. But your employer no longer pays for the newspapers,leave travel, house rent, petrol or the doctor. And with a probable significant increase in medical expenses, or the desire to spend on grandchildren, any reductions in living expenses may be neutralized to a great extent.
  6. Start planning very early :A part of your first salary cheque should go towards retirement, just like a part of it goes towards buying gifts for your dear ones. If you didn’t do that bit of saving, treat the next salary as your first.Albert Einstein is said to have called compound interest “the most powerful force in the universe.” When you are young, time is on your side. Take advantage of this by starting your investments at an early age. Unless you’re going to win a lottery, this is probably the only sure-fire way of retiring very comfortably. See examples of how compounding works. The Indian stock market has returned a compounded annual rate of at least 15% over any 20-year period. So Rs.1 lakh invested in an index fund today (or in a bunch of good companies) could become Rs.33 lakh in 2036. Adding Rs.1 lakh annually could leave you with a Rs.2.77-crore nest egg. If you stay invested, adding Rs.2 lakh a year could boost that to Rs.5.23 crore! Or take a safe scheme like the government’s Public Provident Fund, which returns a decent, tax-free 8% annually. Rs.70,000 (the maximum allowed in any year) invested with an addition of Rs.70,000 every year could leave you with Rs.60 lakh by 2036. You could double that by opening a second PPF account in your spouse’s name. And since your employer will also have a provident fund scheme, you could contribute any additional amount over the minimum 12%. If that works out to, say, Rs.1000, even doubling it to Rs.2000 per month can make a huge difference to the compounded tax-free returns you collect when you retire.
  7. Avoid major changes in your lifestyle soon after retirement :
    Retiring from an active work-life is itself a very significant event and requires a lot of readjustment. Combining this with other events like changing your residence, children getting married or moving to other cities for employment, may make it even more difficult. If possible, try to avoid letting several major events in your life coincide with or around your retirement date.
  8. You don’t have to stop working just because you retired :
    Most people today retiring at age 60 are healthy and in the prime of their careers.Your expertise could be sought after by other companies in your area of work.You may also have hobbies,like painting or writing, which you could convert to a full-time career. So while you are young, work around this and have a hobby you are passionate about. What’s important is that you keep your brain sharp and active. Any money earned can be a boon that will help you preserve, or even grow, your lifelong investments. Most people don’t realize that a regular salary, even a small one, is really worth a lot. I mean, if you retire today even with a modest Rs.50,000 monthly take-home pay, you’re actually as fortunate as a crorepati. Because if you wanted to generate a work-free,after-tax Rs.50,000, you’ll need Rs.1 crore invested in a fixed deposit at a good 8% interest.

I examined the Kumars’ file. Although they had a basket of wide-ranging investments, the amount invested in equities and equity mutual funds were limited. Equities are risky, but only in the short term—not for the young Kumars who have time on their side.Also, they didn’t separate investment earmarked for their sunset years from the rest. So I helped them fix this.Finally, I would also like to remind you that we can’t control regular inflation, but we can control lifestyle inflation by living a simpler life. If you plan well and reap the rewards,you can also continue to save and invest regularly even after you retire.

This article was written by Vishal Dhawan, CFPCM and appeared in the Reader’s Digest  in  April 2011 issue .

 

Read Full Post »

%d bloggers like this: