How To Overcome The Temptation of Borrowing From Retirement Corpus?

A survey report collated by HSBC shows that almost 21% of Indians belonging to working population have not yet started saving for their retirement while 44% of Indians have discontinued their retirement savings due to several challenges confronting them. 

The above numbers prove that starting investments for a goal might be difficult but staying focused on a financial goal is even more gruelling. Building retirement corpus is one such goal that can take a hit anytime as people tend to prioritise current needs over future expenses. In view of the vulnerability of the retirement corpus, it is important to form a strategy that will prevent one from raiding their retirement corpus. 

1. Responsible withdrawals - If withdrawal from retirement nest egg seems inevitable then be responsible while doing so. Such withdrawals should be preceded by evaluation of other options such as borrowings or taking a loan. At the same time, withdrawals should be as sparing as possible.
2. Putting back is important  - Once the need is taken care, individuals should proactively act towards restoration of withdrawn amount. Needless to say, restoring retirement corpus is extremely important and should include adding additional amount to match the interest foregone as a result of earlier withdrawals. 
3. Breaking away from Indian mindset - It is important to reiterate that retirement corpus should be the last option for meeting financial needs. However, most of the times, higher education of children or their marriage force parents to fulfil the shortfall using retirement corpus. Ideally, these circumstances should be taken care through sourcing funds from other alternatives such as education loan or personal loan. Given the trend of disappearance of joint families as well as increasing number of young adults staying away from their parents, it is critical to give priority to building retirement corpus over anything else. 
4. Reviewing the need - At times, people are not mindful about withdrawing from their retirement corpus and give in to short-term goals such as offshore vacations, upgraded car or short-term investments in real estate. At this stage, it is necessary to review the motivation or urge of such withdrawals and most of the times, a careful evaluation can help to take a step back. For example - a couple in their 50s might be prompted to buy an upgraded car as a result of improvement in their lifestyle. It will not be an exaggeration to state that a car, which is a depreciating asset, can bring only a short-term happiness that will tend to diminish over time. Moreover, buying a car may mean increased maintenance costs over period of time. Now, if the couple decides to stay invested and retain their existing car then they will be in a better position to maintain their lifestyle for a longer duration post-retirement than otherwise. 
5. Restricting lifestyle improvements- It is a common fact that improved salaries or business incomes can follow a steep surge in lifestyle needs. While a little boost in lifestyle is encouraging,any substantial change should be avoided. This is due to the fact that phases of financial uncertainties can make it difficult to maintain existing lifestyle and force people to borrow from their retirement corpus. For this reason, lifestyle should always be maintained at a level that can sustain even during short duration of financial crisis without depending on retirement corpus. 

Aforementioned points are few of the basic yet vital steps that individuals can adopt to prevent unplanned borrowings from retirement corpus. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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5 Conditions When Lump Sum Investments Can Score Over SIPs

Systematic Investment Plan (SIP) or lump sum is one question that baffles nearly everyone during an investment process. Situations may arise where you have more in hand to invest, but the logical SIP route holds you back from taking any decision. Protection against ill-market timing, power of compounding and other associated benefits with SIP take over the urge of lump sum investment. 

However, one cannot overlook the fact that few investors aren’t as comfortable with SIP as others. Letting the amount sit ideal in a bank account and transferring it systematically into an equity fund through SIP route might involve more time than investing at one go. At the same time, investing lump sum into a liquid fund and switching it into an equity fund does not free up time either. 

Thus, in order to get a better perspective, it's important to review the conditions when lump sum investment can score over SIP. 

1) When it’s for a real long time - SIP generates incredible results over long-term and that does not change a bit for lump sum investments as well. In fact, power of compounding can yield far heftier returns in lump sum than SIP. Let’s take a look at these two scenarios, where a similar investment is broken down into equal monthly investments and lump sum.

SIP	Investment Amount = Rs 5,000 Investment Tenure 20 Years Rate of Return = 12%	₹ 49,46,276.83
Lump Sum	Investment Amount = Rs 12,00,000 Investment Tenure 20 Years Rate of Return = 12%	₹ 1,15,75,551.71

* Rate of return is assumed based on average historical return by mutual funds. 

2) Income flows are erratic - Investors belonging to business or professional background might not receive regular incomes and so SIP might not work for them just as well as they do for salaried individuals. The irregular flows at different timings makes lump sum route as logical option for people with variable incomes. Such individuals can choose to manually invest at one go as and when they have a sizeable corpus in hand rather than committing to SIPs on fixed dates. 

3) Effective for calm and experienced investors - Lump sum investments are not as insulated as SIPs against market volatility. Hence, this route is more appropriate for investors, who do not lose their calm during wide market fluctuations. Also, the method suits investors who are more into active investing and know how to manage their portfolios in response to market momentum. 

4) Goal investing does not go anywhere - Lump sum investment requires equal or in fact higher need of goal planning. It is important that an investor does not lose sight of goal, the absence of which, will make lump sum investing pointless.

5) Active review - Lump sum investment should follow active review and readjustment. If an assigned goal needs more cash infusion than the same needs to be arranged to make good of any shortfall. Similarly, better-than-expected surpluses should also be managed smartly so that the gains earned are not lost to market volatility. 

After having reviewed the above conditions, it can be deduced that lump sum investment investments aren’t as bad as perceived. Investing at one go can be equally rewarding as SIPs when executed properly.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Five Basic To-Do's Before Launching Your Business Using Personal Savings

“It’s almost always harder to raise capital than you thought it would be, and it always takes longer. So plan for that.”  – Richard Harroch, Venture Capitalist and Author

The quote sums it all...

Holding a business idea just for lack of funds might turn into ‘forever.’ Needless to say, it is necessary to put a plan into action to erase those possibilities. But again, it is almost impossible to dodge the whole ‘capital sourcing’ question right away. 

There is a better way to face it, which is simple, ‘Plan It’. Some of the basic yet effective ways mentioned here can help you give a push to kickstart your business and bring it into reality. 

1. Getting rid of debt - The first and foremost key factor to rowing towards a successful entrepreneurship is to paddle off existing debts. Any amount of debt will make it difficult to balance between personal debt obligations and business expenditures. It is extremely important to be debt-free to focus completely towards business planning and execution.
2. One More Corpus To Build -Corpus for emergency, retirement, children's education and marriage are a mandatory course of action for a secured financial life. But, there is one more expenditure that will add up once you decide to launch your business using personal savings. You will need to allocate funds towards personal expenses separately, which will cover personal expenses during the formative months or years of business. Analysing fund requirement against personal expenses should be done comprehensively. 
3. Personal Financial Plan - Launching a business involves some serious planning, which implies that you might not want to ruin your business progress by overlooking your personal finances. One has to be vigilant about the possibility that business needs might pull away focus from personal financial planning that can again be detrimental to both self and business. It is essential to ensure that business capital needs to not compel you to commit personal assets, which are the backbone of your personal finances. 
4. Incorporate Lifestyle Changes - Lifestyle change cannot happen overnight. It takes an incredible amount of self-control, perseverance, and patience to change the way you live in order to live the way you dreamed. The transition demands substantial lifestyle changes, the thought of which, might even be palpitating for some. But, one has to see a bigger picture behind those small unsettling changes, which can become an advantage at a later time. Moreover, saving more on own translates into less dependency on external funding sources such as credit card or personal loan.
5. Make the Most of Your Time- It will be unjustifiable to not underline the significance of time, right from planning to execution. Time, if invested judiciously alongside money, can dramatically play in the success of your business. No matter if you are running your business concurrently with day job or as full-fledged, committing time is important, which otherwise can fail any amount of financial planning.

So, it's time to stop fretting about where to start, but START. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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What Should Come First - Home Loan Repayment Or Investments?

Believe it or not, the big question about making a choice between home loan repayment and investments pop up at one or the other point of time. Increased salaries, revenues, business profits or a windfall income might instantly give rise to this dilemma. And to help you make a decision, it is important to tick-off few aspects first. 

1) Interest earned vs interest saved - So, at one end, you are saving interest on a loan while on the other, you are earning interest on your investments. This makes it essential to analyse, which scenario is working in your favour. 

Sample Case - Krishna has a home loan of Rs 50 Lakh for 25 years, where he is paying interest of 10% annually or Rs 45,434 as EMI. Krishna manages to save Rs 30,000 per month, which can either be used to prepay home loan or make fresh investments.

Scenario I - Krishna decides to invest Rs. 30,000 every month for next 25 years, i.e., equal to tenure of home loan, into a fund that fetches 12% per annum returns.

Scenario II - Krishna prepays home loan and is mortgage free after 12 years of loan tenure itself. He then invests Rs 75,434 per month (Home loan EMI + Surplus) in a fund delivering 12% p.a. returns for remaining period of 13 years of 25 years.

Now, let’s take a look as which scenario worked in Krishna’s favour. 

	SIP/Investment Route	Home Loan Repayment Route
Corpus At The End	₹ 5,63,65,398.79	₹ 2,80,77,217.80

The above illustration proves that Investment route clearly won over home loan repayment option. 

2) Good debt vs bad debt - Needless to say, home loan qualifies as a good debt and so there should not be any haste in settling it down over other bad debts such as car loan or personal loan. While home value appreciates over time, home loan also attracts deduction under Income Tax Act, which should be a basis of taking any decision. 

3) How close are you to Retirement? - If you are just 5 or 10 years away from retirement then prepaying home loan makes sense than investing. This is due to the fact that risk appetite diminishes with age and the equation explained in the above two scenarios reverses. Thus, home loan repayment is far better than investing in a fixed-income or debt fund. 

4) What’s paid is paid - Prepaying home loan means that you lose the right to claim back the paid amount. On the other hand, investments into stocks and mutual funds are easily accessible and can be withdrawn if any unexpected event occurs. In short, sufficient cash flow as a backup can be a big advantage during unforeseen occurrences. 

5) Still confused? Seek financial advisor’s help - While investments take precedence over home loan repayments, yet the decision is dominantly driven by an individual’s circumstances. Taking a call can be daunting at times as it is more than mere number-crunching. If you find yourself in such a situation then it’s only rational to reach out to a financial advisor to help it decipher it for you. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Cross These Five Investment Hurdles

Managing finances is in itself complex, which further takes shape of a mammoth task when investors fail to dedicate undivided attention towards their investments or portfolio,even when such action is sought periodically. While coping with other time demanding matters, investors tend to overlook certain aspects of their investments that could hurt them at a later stage. 

Here’s a brief reiteration of things that investors must keep away from so as to make informed decisions. 

Chasing past performance - Historical returns or past performance has almost become a barometer to judge future performance of a fund or stock. But, there are more factors in play than just past performance. It is imprudent to ignore market cycles or the economic environment as other decisive aspects that impact a fund or stock’s performance and should be considered before making any decision. For instance, change of fund manager under a mutual fund scheme can drastically impact a fund’s performance going forth, which nullifies the significance of how the fund performed during previous years under old fund manager. 

Submerged in emotions - An outperforming stock or fund investment can instantly leave an indelible impression on an investor’s mind. Resultantly, it becomes hard for investors to let go off those investments easily even when they start languishing. Coming out of an unworthy investment is equally important as initiating or beginning a new investment. 

Directionless Investing - Just like pushing a wall means working against oneself, investments lacking purpose might take one nowhere.  No matter how disciplined or judicious those investments are, they might not produce results without a goal. Assigning a time or objective against an investment is necessary. For example, an investment of Rs 5 Lakh every year for next 10 years in a short-term fund become inadequate to meet the need of funding child’s higher education. Reason being that the investment was abruptly made in a debt instrument due to lack of vision as to what purpose it will solve. Tagging investments to goals is the only systematic way of maximising wealth. 

Working against power of compounding - Most investors are unaware that time adds value to money at a far greater pace than imagined. To appreciate this fact, it is important to know how  monthly savings convert into corpus over years. Here’s is a case scenario, where three different individuals start investing at an age of 25, 30 and 35 respectively.

	A	B	C
Monthly Investment	20000	30000	40000
Investment Tenure	35	30	25
Expected Rate of Return	10	10	10
Total Investment	84 Lakh	1.08 Crore	1.20 Crore
Corpus At The End	₹ 7,57,77,048.67	₹ 6,77,96,804.16	₹ 5,31,50,583.63

Clearly, investment started at an early age fetches higher corpus than those started during later years. Even Rs 10,000 additional investment in remaining two scenarios failed to match what a five-year difference has brought about in the first case. 

Difficulty finding time - Lastly, juggling between work and personal life often creates time deficit and throws financial planning off track. Irregularity in reviewing portfolio or making investments then becomes a hurdle in accomplishing set objective. To deal with this situation, it is important to organise time or at least dedicate few hours a month to ensure that money is working in one’s favour. 

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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