Category: Retirement funds investment for Defence

29 Jul 2014
Retirement Planning Eggs in a Basket

Retirement Planning Eggs in a Basket

One of the most common mistakes done by most of the retired or recently retired persons is to put majority of their money in same or similar investment avenues, like bank FDs, real-estate, Gold, Post Office instruments, etc. All eggs in one basket is never a good mantra to follow whether it is physical eggs or retirement nest-egg! The article below deals with this aspect as also the eroding effect that inflation has on the retirement corpus. A 4-step strategy to be followed is also suggested for living a golden retired life. The basic issue is to plan well, execute well, monitor well and thus, LIVE WELL.

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23 Jul 2014
Retire to live comfortably

Retire to live comfortably

Government guaranteed pension, inflation-beating returns from safe investment schemes, low rate of inflation and the comfort of a joint family – all these four pillars on which retirement planning rested earlier, have disappeared. Recently retired or tomorrow’s retirees will need to balance high expenses with uncertain returns on their invested capital, longer lifespan with ever looming dangers of outliving their accumulated retirement corpus, and an urge to hang up their boots early. And all this, without wanting to compromise on their lifestyle at any stage – while working or when retired.

The actual big challenge for retirees comes from an enemy which is not easily recognized – inflation. Just as compounding works to grow your corpus, inflation eats away at its value without your knowledge. A retirement corpus of Rs 1 crore may seem like a lot of money today but over 30 years, an inflation of 8% can reduce its equivalent purchasing value to less than Rs 10 lakhs of today!! And to think that consumer-level inflation could actually be in double digits in India at a lot of times in these 30 years. A low-to-moderate inflation rate of 7-8% does not attract attention of the working class. That’s because prices of products and services do not seem to be shooting up ‘fast’ but it nevertheless erodes your money-value ever so quietly!

Let’s take the example of somebody who feels that his retirement corpus of Rs 50 lakh will help him live well. Preliminary calculations show that if he invests this sum at 8% per annum in very safe investment avenues, he will start eating into this corpus from the age of 72 years (ie just 12 years after retirement at 60 years of age) and by the age of 86 years (ie 26 years after retirement), there will be no corpus left! Remember that these calculations are only of normal day-to-day living, no big purchases – not even change of a car ever, any gifts to children / grand-children, any celebrations, any expenses on your personal hobby, any holidays or repayment of a home loan. And if inflation goes into double digits as it is today, heavens will surely fall! Thus, you need to go beyond safe investment avenues if you do not want ‘living long’ to be your biggest fear. It is advisable to invest a calculated amount in some high growth investment avenues which generates returns enough to offset the low returns of ‘safe’ avenues. This will not only support your expenses but will help you pursue your dreams post-retirement.

Follow this four-step retirement strategy to preserve your nest-egg while being able to live a golden retired life:-

  • Know how much you need

The income that you need to live off on after retirement is approximately 65-70% of the income that you live off on while working, considering no big purchases or expenditures. However, this rule of thumb may not be accurate for everybody since people are living longer than ever and retiring in good enough health to incur additional expenses (travel, entertainment, and so on). This estimate applies if your situation fits the following criteria:

  • Your house will be paid off (no rent/loan).
  • Your children will be financially independent.
  • Fewer taxes because of lower income and No debt of any sort.
  • Decide your asset allocation

Don’t pull all your nest eggs in one basket. That’s too risky a strategy for something as important as living on post-retirement. The nest egg should be a mix of different asset classes and investment instruments. While debt and fixed income instruments form the backbone of the allocation, do not forget equities and a small allocation to gold. Equities, preferably through mutual funds, offer a distinct advantage because they can deliver significantly higher returns than other investment over the long term. However, this is a generalized statement and finally, everything depends on your risk attitude and aptitude.

  • Choose appropriate products

Once you have decided your asset allocation, choose the investment vehicles that will take you to your destination. Instead of investing in a single scheme, do so in a bunch of instruments, which not only assure regular income if you need it but also allow your corpus to grow in tandem with your withdrawals and rising inflation. This strategy should alter with the age or stage of the life after retirement. So, for the first 6-8 years after you retire, allow your funds to grow at a rate faster than the withdrawal. Even as you use the interest earned through debt options to meet your expenses, invest in equity through mutual funds or monthly income plans. The crux of all investment though remains a very aggressive monitoring after you have parked your funds in them.

  • Formulate a withdrawal plan

The final step in your retirement planning is to formulate a withdrawal strategy. Your retirement portfolio must have two essential components: liquidity and growth. It should provide you regular income and also grow fast enough to take care of future expenses. Systematic Withdrawal Plans (SWP) options of the Mutual Funds and rentals from a good residential / commercial property are ideal in this regard.


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01 Jul 2014
Retirement Corpus Investing

Retirement Corpus Investing TOI

My article in Times of India today (01 July 2014) on Retirement Investing


Please find attached below my article in the Times of India of today (01 July 2014 – financial planning page).

It is regarding how most of the retired or retiring people invest their retirement corpus considering ‘safety of capital’ as the prime criterion, only to discover few years down the line that their capital has lost its purchasing power due to the twin onslaught of inflation and tax.

A carefully made portfolio, which finely balances risk, returns and balance liabilities, while ensuring that the standard of living does not go down throughout the lifetime of the last surviving spouse, is the best way to go about such an investment. Also, such investments cannot be a fire-and-forget solution – they need to be invested, monitored and re-balanced if required at regular intervals.

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Col (retd) Sanjeev Govila, CEO, Hum Fauji Initiatives

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19 Oct 2013
Revisiting Tax-free Bonds Ideal Instrument for Retired and Retiring Persons

Revisiting Tax-free Bonds: Ideal Instrument for Retired and Retiring Persons

I had written about Tax Free bonds a month back on my blog (read: There were many queries on the same. Hence, I felt the need to clarify some more on these tax-free bonds. In the meantime, the current crop of tax-free bonds on the block have improved in returns over the ones available earlier a month back, thus making them even better in their offering. The additional points that make these bonds attractive for the retiring and the retired persons are as follows:-

  • The returns are even better now. Consider the table below for the Power Finance Corporation (PFC) bonds:
Individuals Retail (UPTO Rs 10 LACS)
10 Years 8.43% 9.40% 10.62% 12.20%
15 Years 8.79% 9.80% 11.07% 12.72%
20 years 8.92% 9.94% 11.23% 12.91%


Individuals HNI (More than 10 LACS)
10 Years 8.18% 9.12% 10.30% 11.84%
15 Years 8.54% 9.52% 10.76% 12.36%
20 years 8.67% 9.67% 10.92% 12.55%

As can be seen, the returns given in the PFC bonds equal a fabulous pre-tax return of up to 12.91% per annum of that available from an equally safe instrument like bank FDs, PO MIS or SCSS.

  • Due to the very long time-frames of 10, 15 and 20 years of these bonds, these good returns are assured for long periods of time, resulting in consistent and good cash flows. Thus, the interest rate risks are mitigated for these long periods.
  • Another good aspect of the bonds is the lack of ‘Call’ option on these bonds by the issuer, thus removing the nasty surprise of the company deciding to call back the bonds any time in future. Such a surprise has affected large number of investors in the past in many other bond issues including in sovereign type of bond issues.
  • These bonds are very good for portfolio diversification. With the high assured return on investments and near zero probability of credit default, these bonds are very good portfolio diversification tool for any investor.
  • Some retired people have expressed a doubt how they can use the yearly interest for their monthly household expenses. It is rather simple. The yearly interest received can be comfortably invested in Liquid Mutual Funds which are currently giving approximately 8.2% per annum of safe returns. A Systematic Withdrawal Plan (SWP) can be set up for a monthly income on a given date every month. Eg, to get Rs 10,000 per month, take Rs 14 Lakhs worth of these bonds for 20 years. It will give you Rs 1.2 Lakhs per year, which can be used to get Rs 10,000 per month. In case you do not need the interest in a particular year or for initial few years, let the yearly interest lie in suitable debt mutual funds and start the SWP when you feel the need. You will get a higher corpus and would be able to afford higher monthly ‘income’.


These bonds are really a case of making hay while the sun shines in case you are the kind of investor who wants good but safe long-term returns.

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20 Jan 2013
Investments for the recently Retired in India

Investments for the recently Retired in India

Retirement marks the beginning of a new phase in an individual’s life. It’s a transition from a lifetime of work to a time when one can relax, spend time with the family and pursue other interests, which somehow take a backseat when on a regular job. Not only this, retirement also marks a transition in one’s finances. With a regular stream of income no longer available, the savings made over one’s working years now have to provide for all his needs. Even if one decides to go in for a second career (eg, in case of Defence Officers who retire early or others who may find another job in private sector due to skills acquired during working life), it will be for a limited period of time till, say, 60-65 years of age. Taking a life-expectancy of 85 years, there are still 20-25 years of non-earning life to be lived, with a challenge of increased expenses (large number of career-related perks not available now) and desire to maintain at least the same living standard as while earning. For such investors, capital protection and liquidity are priorities. In this article we profile some investment avenues that retirees can consider adding to their portfolios.

Retirement can be an ugly word if you do not have an investment  plan and have no idea how inflation can deplete your finances. But it need not be if you can ensure a steady flow of income that can sustain you for 20-25 years after retirement. How does one go about it? First assess the amount you need per month depending on your expenses and lifestyle. Then, based on your corpus and risk appetite, opt for an appropriate scheme. Instead of investing in a single scheme, do so in a bunch of instruments, which not only assure regular income but also allow your corpus to grow in tandem with your withdrawals and rising inflation. This strategy should alter with age or stage of life after retirement. So, for the first six to eight years after you retire, allow your funds to grow at faster rate than the withdrawal. Even as you use the interest earned through debt options to meet your expenses, invest in equity through mutual funds or monthly income plans. In the next 10 years or so, your withdrawals should broadly match the growth of your portfolio. As you look at a higher monthly income through systematic withdrawal plans, you can reduce your exposure to equity. Beyond this period, you can use more of invested capital and significantly reduce the focus on growth. If you are not able to sustain the corpus and own a house, opt for the reverse mortgage scheme

Notwithstanding the above, there is a misconception amongst such investors that one should invest only into extremely safe avenues on or nearing retirement. It has to be kept in mind that the primary aim of all investments is to make the money grow more than inflation, and this aim remains constant, whether you are still working or retired. To explain this, consider Indian scenario where the average long-term annual rate of inflation is about 8%, implying that whatever costs Rs 100 today, will cost Rs 108 next year. Thus, if your income-tax adjusted returns are not anything more than Rs 8 per year on that Rs 100, then the actual worth of your money is effectively getting eroded each year. The wider implication of this is that, while your expenses will rise with inflation, you will have lesser money available each year and a time will come when a cut-back in the standard of living will become imperative. The only investments that make it possible with adequate liquidity are necessarily equity-related like stocks, mutual funds and ULIPs. However, one has to take a call on how much risk is acceptable to him/her. Those retiring from a job which provides them a pension, like Government employees, are a bit lucky as they get pension on retirement; but there is one negative thing attached with this – pension keeps people in illusion that pension will be sufficient for them to have a comfortable retirement for all their expenses like household expenditure, leisure activities, vacations, repairs & maintenance of house, social obligations and maybe some liabilities which are still balance to be tackled.. They forget that pension will be close to half of their income, the basic pension gets frozen with only DA rising over the years (except maybe on a Pay Commission review) and that the expenses that are currently borne by the exchequer, are not available after retirement.

Ideally, the entire corpus available with an individual on retirement (as also additional monthly investments, till the capability exists) should be related to individual goals like children’s education and marriage (whatever liability is still balance at the time of retirement), steady and steadily increasing regular income, vacation expenses, social obligations etc, and availability of enough liquidity in investments so that emergency requirements can be easily met. To this end, the money available needs to be invested in an array of instruments which meet the desired financial goals while still taking only those risks which are acceptable to the investor.

Likewise, the retiree’s requirements will also play an important part in the portfolio creation. For example, a retiree who is well off and supported by his family may not need to fend for himself. Instead he might be keen on investing for his grandchildren and other family members. In such a scenario, the investment tenure goes up, as does the opportunity to take on higher risk; equity-oriented funds emerge as a very feasible option for a longer time-frame.

Finally, don’t undermine the importance of a qualified and experienced investment advisor. Powered by expert advice and prompt service, a good investment advisor can ensure that your post-retirement investments become a hassle-free affair.

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