Speaker: CA. Utsav Sahgal GERIATRICS & INVESTMENTS.

Speaker: CA. Utsav Sahgal

GERIATRICS &

INVESTMENTS

Defining “INVESTMENT”

• The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit is “investment”.

• Investment can be in the form of stocks, bonds, options, futures, FOREX, mutual funds, banking instruments, real estate (among many other things), in unorganized business or starting your own business.

A “REAL” INVESTOR’S ATTITUDE

• Investment is NOT GAMBLING.

• A "real" investor does not simply throw money at any random investment

• Commit capital only when there is a reasonable expectation of profit. Yes, there still is risk, and there are no guarantees, but investing is more than simply hoping Lady Luck is on your side.

For the GeriatricsTRICK IS TO START EARLY !!

• Financial planning for the old age has to start NOW.

• Money needs time to grow. • To demonstrate, two friends A & B aged 25 years

have `15,000 to invest today. A invests this today @ 5.5 % compound interest whereas B invests the same amount after 10 years @ 5.5 %.

• At the age of 50, A would have made `57,200 and B only `33,487.

COMPOUNDING – The Simple Fundamental of Any Investment

• Albert Einstein called compound interest "the greatest mathematical discovery of all time". It’s true partly because, unlike the trigonometry or calculus we studied back in high school, compounding can be applied to everyday life.

• The wonder of compounding (also called "compound interest") transforms your working money into a state-of-the-art, highly powerful income-generating tool.

• Every investment option’s growth is based on the principle of compounding more than the principle of demand - supply.

BASIS OF MAKING INVESTMENT

• Investment can be measured in several parameters such as, time, liquidity, quantum, risk, return, tax incidence and legality.

• When talking from the point of view of geriatrics mainly three things matter: TIME, RISK AND LIQUIDITY

Investment Factors at different stages of Life

Old Age Liquidity/ Regular Income

Return / Capital Protection

Tax / Quantum

Young Age Time / Risk

THE ART OF DESIGNING PORTFOLIO AND PLANNING DIVERSIFICATION

• A portfolio is a combination of different investment assets mixed and matched for the purpose of achieving an investor's goal(s).

• Portfolios can be aggressive, moderately aggressive or conservative.

Portfolio Designing with Priority Perspective

• High Priority Agenda(Such as long term healthpool, marriage expensespool, etc.)

• Low Priority Agenda(Deferrable expenses such as travelling pool, buying luxury items, etc.)

Fixed income generating funds

with least risk and time bound

Dynamic funds with high risk and

high returns

How to assess the Right Investment Mix

• Determine your asset-mix• Keep a tab on your lifestyle expenses• Put a plan in place for new incomes and

windfall • Determine specific portfolio funds for specific

purposes• Be detached and objective• Don’t time the market

Main Sources of Income at Geriatric Stage

• Pension Income Investment

• Income from Interest and Dividend Income • Rental Income Type

• Business Income as profit Non-

• Professional Receipts as Investment

a consultant/advisor Income Type

Models of investment considering tax rate, risk exposure and return rate

• LONG TERM; NO TAX AT MATURITY Equity/Equity Mutual Funds

(10 per cent is the tax you pay on long-term capital gains made from selling fixed-income securities, irrespective

of the tax bracket you are in)

Balanced Funds/Equity Oriented Hybrid Funds(Upto one third assets invested govt. securities, not taxable but carry risk exposure)


• LONG TERM; NO TAX AT MATURITY Public Provident Fund

(Exempt from tax completely, maximum of ` 1,50,000 per year with a lock – in period of 15 years and ROI of 8.8 %)

Tax Free Bonds(Fixed income products with a lock in period of 10 to

15 years)


• How TAX can erode Return on investment


• Regular Income : But Interest, Maturity taxed Monthly Income Schemes Mutual Fund MIPs Senior Citizen Saving’s Scheme Insurance Annuity Plans Reverse Mortgage Loan

(Loan against home, receive lumpsum periodic payments, exempt from tax)

Investment options for Geriatrics

• Senior Citizen Savings Scheme (SCSS) : For above 60 years and 55 years with certain

restrictions Amount between ` 1,000 to 15,00,000 Period : 5 years ; Rate of interest : 9% Penalty of 1.5 % if amount withdrawn before

2 years and 1 % if withdrawn after two years but before expiry of stipulated period


• Post Office Monthly Income Scheme Guaranteed Monthly Return Amount from ` 1,000 to 3,00,000 and

`6,00,000 jointly Rate of interest 8 % and 10 % percent

bonus after the end of 6 years Penalty of 5 % if amount withdrawn after 3

years of investment


• Post Office Time Deposit Similar to regular Fixed Deposits in banks Amount beginning from ` 200 to above Lock in period ranges from 1 year to 7

years Rate of return from 6.25 % to 7 %

compounded quarterly


• Fixed Deposits Regular FDs in bank AAA rated are preferable Though they offer lower rates than the

companies, but, they are safer and more liquid Amount of core deposit and period of

investment is flexible


• Monthly Income Plans Higher income return options in the form of

Mutual Funds More market oriented funds Rate of return varies from 15 % to 20 % with

flexible period of investment options Dividends on such funds are tax free but you

will need to bear market risks if any


• Varishtha Pension Bima Yojna Scheme launched by LIC Only for individuals above 60 years of age Amount of investment varying from `

66,665 to 6,66,665 Lock – in period of 15 years with rate of

interest between 9.25 % to 9.38 %


• Pension Plan : Jeevan Akshay – VI Single premium pension plan as from the date

of investment, regular fixed returns would be paid

Can invest between the age of 30 to 85 years with a minimum sum of ` 1,50,000

Annuity payable increases at 3 % p.a. 1/3rd amount of maturity is exempt from tax

Key Takeaways from such Investment Plans

• While deciding the investment options safety of capital is of paramount importance

• Liquidity of funds and timing flexibility is the key

• Tax can erode returns • Inflation key factor if the rate of increase in

inflation is greater than rate of increase in capital multiplication

Laddering Technique – Its all about timing

A B

Maturity on March 31, 2016

A1

Invest ` 25 on

April 1, 2015 for One year

April July September January March

April July September January March

Period of Blockage of FundsInvest `100 on

April 1, 2015

A2

Invest ` 25 on July

1, 2015 for One

year

A3

Invest ` 25 on Oct.1,

2015 for One year

A4

Invest ` 25 on Jan.

1, 2015 for One

year

B

Maturity of A1 on March 31,

2016

Liquidity of funds maintained

Option -1

Option -2

Game changing investment rules till hitting the Geriatric Stage

1. Save 10 % of your income for retirement(Tip : Start a SIP in a mutual fund and automate the process by giving an ECS mandate to your bank)

2. Increase investment as your income grows(Tip : When you get a raise, allocate half to the savings. It will go unnoticed as you will be enjoying the rest half)

3. Don’t dip into corpus before 60 years4. Withdraw a 5 % initially and then step up

( Tip : You can safely withdraw half the inflation adjusted appreciation. If portfolio has earned 12 % you can withdraw 6%)

Game changing investment rules till hitting the Geriatric Stage

5. 100 – Age = Your allocation to stocks6. Borrow for education, save for retirement

(Tip : An education loan inculcates financial discipline in the child. If he is responsible for the repayment, he gets into

saving habit early in life)

7. Save 20 times your annual expenses(Tip : Buy a health insurance cover that continues till you are 70-75 years old. It is difficult to buy one afresh when you are older and not so healthy)

Happy Investing !!

Thanks

Speaker: CA. Utsav Sahgal GERIATRICS & INVESTMENTS.

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Transcript of Speaker: CA. Utsav Sahgal GERIATRICS & INVESTMENTS.