Best Monthly Income Scheme for You
- Awareness of your needs and requirements – do you really need that extra money?
- Liberty to withdraw extra chunk at the time of any emergency that could come unannounced.
- Inflation which always eat up your savings and increases your expenses, leading to increase of this regular monthly requirement periodically.
Heavy taxation is a major negative factor for above investments. In SCSS and PO MIS, the small allowable amounts do not generate any meaningful regular income.
A better alternative could be Systematic Withdrawal Plan (SWP) offered by mutual funds (MFs). SWP is the opposite of SIP (Systematic Investment Plan). In SWPs, you can decide the frequency of income (monthly, quarterly, half-yearly or yearly), how much do you want and you can start, pause or stop it whenever you want. For investment too, you can choose as safe a debt fund you want, or go for volatility by choosing equity funds, or a combination of both through hybrid funds. The taxation is very benign and one could save up to 60-80% tax compared to conventional options given in the table above.
(Contributed by Priya Goel, Financial Planner, Team Sukhoi, Hum Fauji Initiatives)
Is It a Good Time to Prepay Your Home Loan?
Do you have a home loan on your head? Are you confused about whether to pay off the loan in part or full or do nothing?
RBI has recently increased the interest rates and if you have a floating interest rate loan running, your EMIs are bound to increase. Therefore, prepaying a part of your home loan can be a good idea especially if you are at the early stage of the loan as interest rates plays a major role in deciding your EMI.
But before prepaying the loan fully or partially, don’t forget to consider the following points:-
- Don’t Disturb your emergency corpus for prepaying your home loan as it has been created for a rainy day or for unforeseen circumstances.
- Choose wisely between loan tenure and EMI reduction When interest rate rises, generally you have two options – increase the EMI amount if you want to maintain the same tenure, or increase the loan tenure if you want to maintain the same EMIs (the default option). Choose wisely because the former may burden your monthly budget while the latter would increase the overall interest that you pay.
- Taxation. Before making a decision, keep in mind the taxation benefit that you get on both the principal and interest payments of the loan.
- Investments planned for your Financial Goals should not be altered or get affected due to your home loan decision. Meeting your future financial requirements is the most important function of money and rising interest rates should not derail them.
- Psychological Factor. Consider how much of a psychological burden a heavier loan would place on you or your family. Eg, at the time of retirement, almost everybody wants to be loan-free as you don’t want to spend your golden years carrying the burden of large EMIs.
Your decision to pre-pay or fully repay a loan should be arrived at after considering each of the above factors carefully and completely.
(Contributed by Yogesh Gola, Financial Planner, Team Vikrant, Hum Fauji Initiatives)
Simple Thumb Rules for Your Money Management
Here are some smart guidelines that can approximately tell you how to manage your money. But one word of caution – while these thumb rules give you general sense, there is much more to managing your money – use them only as guidelines and nothing more.
- Rule of 72 – When will my money double? We all want our money to double and this rule lets you know the approximate time it will take to do so. Let’s suppose you have invested Rs 1 lakh in a product that provides you a rate of return of 6%. If you divide 72 this number 6, you arrive at 12. That means, your Rs 1 lakh will become Rs 2 lakh in 12 years. If equity investments are likely to give you 12% in the long run of 5 years or more, then your money will double in 72 ÷ 12 = 6 years. Similarly, Rules of 114 and 144 can be applied to know when will your money triple and quadruple respectively.
- Rule of 70 – How fast will my money lose its value? We all know what Inflation (महंगाई) can do to the ‘real’ value (purchasing power) of our money. This is an excellent rule that helps you determine what your current wealth will be valued few years down the line due to inflation’s eroding effects. To calculate this, divide 70 by the current inflation rate. The number that you arrive is the number of years your wealth will be worth half of what it is today. For example, let’s suppose you have Rs 50 lakh and the current inflation rate is 6.7%. So going by the rule of 70, your Rs 50 lakh will be worth half – Rs 25 lakhs – in 10.5 years [70 ÷ 6.7 = 10.5].
- Rule of 100 – How much Equity exposure should I have? The 100 minus age rule is a great way to determine one’s asset allocation – equity and debt. Subtract your age from 100, and the number that you arrive at is the percentage at which you should invest in equities. The rest should be invested in debt. For example, a 25-year-old should have 100 – 25 = 75% in equity (stock markets like Equity mutual funds) and rest 25% in debt (safety). But please apply this rule very carefully – your risk profile, future requirements and current market conditions could have a overbearing effect on this rule.
(Contributed by Sweta Kumari, Associate Financial Planner, Team Arjun, Hum Fauji Initiatives)