Download Tax Saving Mutual Fund Application Forms
Invest In Tax Saving Mutual Funds Online
Leave a missed Call on
94 8300 8300
Invest in Equities before and after Retirement
Investing in equities over a long period is one of the best ways to stay ahead of inflation. The popular indicator for the performance of equities in India is the BSE sensex. In about 35 years, the sensex has delivered a compounded annual return of about 17%, from 100 in 1979 to over 28,000 now.
Every investor has two phases in his / her financial life: the accumulation phase and the distribution phase. During the accumulation phase, he / she saves part of his / her earnings and invests the same for accumulating a corpus for the retirement years, that is the distribution phase when the income from such corpus (and at times partly principal too, if enough accumulation wasn't done) is used for expenses. The traditional theory is that one may invest in an equity oriented portfolio in the accumulation years, but should make the portfolio debt oriented as one reaches retirement, to avoid volatility in investments in non-earning years.
My belief is that prior to retirement, as close to 100% of the long term investments should be in equities as one can emotionally withstand volatility. After retirement too, as close to 100% of the long term investments should be in equities as one can emotionally withstand volatility.
If one starts early in the accumulation phase and maintains investments in equities for long period of time, due to the power of compounding one is able to accumulate such a large corpus by the time one retires, that the annual requirement for expenses is only a fraction of the portfolio or of the expected annual returns. As a result, even if one is withdrawing in periods when the equities are not doing well, the withdrawal is only a small percentage of the corpus.
Let's analyze the above with the help of an example. Say Astha, 25, and her husband together earn Rs 6 lakh a year post taxes, and expect their income to grow at 10% per year.
They spend 50% of their income, another 25% goes towards EMIs etc for asset purchases and the remaining 25% is allocated in equities for their retirement, which is around 35 years away. If they were to invest this 25% in equities and stay invested till retirement, it could accumulate to approx Rs 50 crore (at 17% compound per year) and the annual expenses (growing at 7% compounded annually for inflation) reach approx Rs 30 lakh which is only 0.60% of their corpus which is Rs 50 crore. The couple can then afford to stay put in equities during their retirement years and keep withdrawing the annual expenses from equities. In this distribution phase, there might be some years which may be bad for equities, and she may be constrained to withdraw, when the equities are down. Since withdrawals would be only a small percentage of the total corpus, it would not hurt.
To retire comfortably, one should start saving early, save more, embrace equity and stay put through market cycles. And if you invest in good equity funds which deliver better returns than the sensex, that's the icing on the cake.
For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
Leave a missed Call on 94 8300 8300
Leave your comment with mail ID and we will answer them
OR
You can write back to us at
PrajnaCapital [at] Gmail [dot] Com
---------------------------------------------
Invest Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs
Download Mutual Any Fund Application Forms
---------------------------------------------
Best Performing Mutual Funds
- Largecap Funds Invest Online
- DSP BlackRock Top 100 Fund
- ICICI Prudential Focused Blue Chip Fund
- Franklin India Bluechip
- ICICI Prudential Top 100 Fund
B. Large and Midcap Funds Invest Online
- ICICI Prudential Dynamic Plan
- HDFC Top 200 Fund
- UTI Dividend Yield Fund
- Birla Sun Life Front Line Equity Fund
- Franklin India Prima
C. Mid and SmallCap Funds Invest Online
- Reliance Equity Opportunities Fund
- DSP BlackRock Small & Midcap Fund
- Sundaram Select Midcap
- IDFC Premier Equity Fund
- Birla Sun Life Dividend Yield Plus
- SBI Emerging Businesses Fund
- HDFC Mid-Cap Opportunities Fund
- ICICI Prudential Discovery Fund
D. Small and MicroCap Funds Invest Online
- DSP BlackRock MicroCap Fund
- Franklin India Smaller Companies
E. Sector Funds Invest Online
- Reliance Banking Fund
- Reliance Banking Fund
- ICICI Prudential Banking and Financial Services Fund
F. Tax Saver Mutual Funds Invest Online
1. ICICI Prudential Tax Plan
2. HDFC Taxsaver
- DSP BlackRock Tax Saver Fund
- Reliance Tax Saver (ELSS) Fund
G. Gold Mutual Funds Invest Online
- Relaince Gold Savings Fund
- ICICI Prudential Regular Gold Savings Fund
- HDFC Gold Fund
- Birla Sun Life Gold
H. International funds Invest Online
1. Birla Sun Life International Equity Plan A
2. DSP BlackRock US Flexible Equity
3. FT India Feeder Franklin US Opportunities
4. ICICI Prudential US Bluechip Equity
5. Motilal Oswal MOSt Shares NASDAQ-100 ETF
Posts
No comments:
Post a Comment