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Posts Tagged ‘entrepreneur’

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National Pension Scheme (NPS) which is a defined contributory savings scheme was introduced by the government with an intention to provide retirement solutions for Indian citizens.

Under the NPS there are two types of accounts – Tier I (pension account) and Tier II (investment account).

  • Tier I is the a mandatory account which allows limited withdrawal options until the person reaches the age of 60.
  • Tier II which is a voluntary savings/investment account is more flexible and allows the subscribers to withdraw as and when they wish without any restrictions.

In Jan 2018, the PFRDA (NPS regulator) relaxed the withdrawal norms and allowed the subscribers to withdraw up to 25% of the balance after the completion of 3 years. The purpose of withdrawal included treatment of specified illness of a family member, education of children, wedding expenses of children and purchase or construction of house.

Partial withdrawals – some more options now

The PFRDA has recently added two more events under which partial withdrawal from the NPS can be made before retirement. They are as follows:

  • Partial withdrawal towards meeting the expenses pertaining to employee’s self- development/ skill development/ re- skillingwill be allowed. This includes gaining higher education or professional qualification for which the employee might require in and out of India. However, if such activities on request of the employee are sponsored by the employer then these will not be considered as a class for withdrawal as in such cases the employer bears all the expenses.
  • Partial withdrawal towards meeting the expenses for the establishment of own venture or a start upshall be permitted. However, if an employer-employee relationship exists, then in that case the partial withdrawal will not be applicable.

There are certain limitations to the partial withdrawal clause which remain unchanged:

  • The subscriber should have been a member of NPS for a period of at least 3 years from the date of joining.
  • The subscriber shall be permitted to withdraw accumulations not exceeding 25% of the contributions made by him or her, standing in his/her credit in his or her individual pension account as on the date of application from the withdrawal without considering any returns thereon.

For instance, if you have Rs. 2 lakhs in your account out of which Rs 1 lakh was contributed by you and Rs 1 Lakh was contributed by your employer, then you will be able to withdraw only Rs. 25000 or 25% of your contributions.

  • The frequency of total partial withdrawals shall remain unchanged i.e. the subscriber shall be allowed to withdraw a maximum of 3 times throughout the entire tenure of the subscription of the NPS. For the withdrawal, the subscriber must make a request to the central record keeping agency or the Nodal office.


Adding equities to your retirement corpus

In addition to adding more withdrawal options, there have also been increases in the allowed equity percentage to the retirement corpus. The percentage of equity assets that a subscriber can choose under active choice have been increased. The percentage of equity assets allowed has been increased to 75% from 50% (applicable for non government employees).

All in all the PFRDA is trying to make the NPS more attractive as a retirement solution. Depending on your age, time horizon, risk profile and current retirement corpus investments, the NPS could still prove as one of the avenues that you could consider using for building a retirement corpus.

 

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Fin Plan for woman entrepreneur

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Meeting deadlines, adding value, juggling priorities, wearing different hats are a part and parcel of every entrepreneur’s life. Whilst there is a certain high that comes with all of this, it is also crucial for an entrepreneur to critically manage money, both for the business and himself/herself and dependents. Whilst efficient use of capital is one of the most crucial elements along the entire entrepreneurial journey, we believe there are two phases where managing money is absolutely critical. Money management during these two phases can go a long way in ensuring that the business can reach a stage where it is robust enough to survive, grow and flourish over longer periods.

Phase 1: Whilst you are planning to set up

Phase 2: In the first 18 -24 months of the business

Money management during both these phases can be fairly similar. Entrepreneurs still need to lead their personal lives, even as they go about building the blueprint for the business that is closest to their heart. With a significant number of entrepreneurs today quitting jobs to find their true calling, planning the capital requirements for their business, as well as to sustain their personal lives whilst positive cash flows from the businesses are yet, to happen are crucial. We would recommend that entrepreneurs focus differently on their personal and business finances.

Personal finances

1  Create a large contingency fund – Have 12 to 18 months of personal expenses ( including personal EMIs ) in financial instruments, wherein they can be accessed immediately, as well as have no significant risks of capital loss. Instruments like PPF and EPF accounts are not great friends of early entrepreneurs as access to funds in these accounts tend to be rather difficult and time consuming. Instruments like bank deposits and debt mutual funds without a lock-in are superior options during this phase. You may need to start drawing a small compensation during the latter part of this phase, so seek tax efficiency as well.

 2  Ensure that you are covered against risks in your personal life – Have adequate life insurance (buy term insurance as it is the most cost efficient) so that debts and living expenses of your family are adequately covered. Ensure that you have health insurance cover for your family and dependents in place for an adequate amount.

Business finances

1  Avoid risky investments with your business finances – Remember, the best returns over a period tend to come from your business so avoid other risky investments in this stage with funds which are needed for your business. For example, do not temporarily park funds into equity markets or real estate. At the same time, optimize your returns depending on your cash flow requirements, by building a tiered investment strategy. In case you cannot do this yourself, use the services of a financial planner. Liquid and debt funds can be very useful tools to consider.

 2  Focus on good costs, eliminate the bad costs -With a large number of businesses, getting started without external funding and needing to sustain using internally generated cashflows, it is crucial to keep costs under control. Look at costs as good costs and bad costs. Good costs are those that have a high probability of a success outcome, whereas bad costs are those with a low or no probability. This definition may vary from business to business, for example a swanky office may be a good cost in a consumer business, and a bad cost in a B2B model.

3  Use technology tools to the maximum – Through the use of mobile technology and the internet, it is now possible to manage your cash flows efficiently, with minimal commitment of your most precious resource during this phase i.e. entrepreneur’s time. Understand how you can use technology to manage cash flows and get superior returns on your temporarily idle cash in this phase.

Remember, whilst all rupees are equal, but some are more equal than others. More so, when you are a new entrepreneur.

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