NATIONAL PENSION SYSTEM (NPS) - FY 2015-2016

NPS is a pension scheme regulated by Pension Fund Regulatory & Development Authority (PFRDA), and initiated by Government of India.

It gives an additional deduction of Rs 50000/- from FY 2015-2016 under section 80CCD (1B) which currently is only for NPS.

This deduction is above your 1.5 lac u/s 80 CCC limit.

Let us see some more features of NPS:

1. They invest our money in three baskets of investment in auto/active choice.  E- Equity, C- Corporate Bonds & G- Government Securities.

2. It allows for withdrawal up to 60% of retirement corpus post retirement. 

3. Withdrawal amount can be spread over a period of 10 yrs post retirement age.

4. Minimum 40% of the accumulated corpus has to be transferred to annuity provider.

5. Withdrawal of 20% is allowed on premature closure. Balance 80% is utilized to buy annuity.

6. Those who prefer risk, investment in equity up to 50% can be done through the scheme.

7. For those who prefer secured investment 100% debt fund options are available.

8.Once in a year you can switch between different fund options, enabling to move in line with market opportunities.

9.You will receive unique PRAN (Permanent Retirement Account Number) with T-pin which remains the same through your life to view your subscriptions and track your investment. It can be used from any location in India.

10. Scheme is open for all citizens of India (Resident/NRI) who are between 18-60 years of age.

Thus NPS is well regulated, transparent and flexible pension scheme providing financial security and stability during old age.

It is a measure taken by our government to provide social security to our citizens. 

Get rich without Real estate, get rich with SIP's

There’s a misconception among Indians that real estate is the only investment that can make us rich. Due to this, young generation in their 20's and 30's opt for a handsome home loan and sign up for an apartment. But, if you are in your wealth creation phase, it makes more sense to invest aggressively in equity or balance fund via SIP.

Misunderstandings about real estate

1.   Myth, Home is an asset

Asset is one from which we earn returns; we do not consider self-occupied property as an investment asset.

·      EMI's on home loans are compulsory savings – Suppose, we have a 50lakh loan for 10yrs at 10.5%pa - EMI is Rs.67000. After 10yrs total amount comes to 81lakh that we pay to the bank. We end up paying 31lakh as interest. So appreciation should be counted on 81lakh and not on 50lakh. The same amount, if invested in equity / balance fund will earn you around 1.84crore.

·      If we postpone our desire to own a house for 10yrs instead and stay in a rental of 50lakh for 10yrs, rent amounts to around Rs.12, 500 per month. Thus we are paying 15lakh rent in 10 years. And if the balance amount of EMI (67000 – 12500) is invested in equity / balance fund, we create a corpus of 1.5crore in 10yrs.

2.   Myth, Real estate always multiples in value

·      If we consider the period from 1992 to 2002, there were no transactions at all in the market. Anyone in need of money at that time sold property in distress and they didn’t even beat bank FD. Andheri (West) rate around Rs.3000 per sq. ft in 1992 amounted to Rs.3500 per sq.ft in 2002.  It's just 1.20% in 10 yrs.

·      There has never been a ten year cycle in Indian stock market history where SIP’s in equity or balance funds delivered nothing. Between June 1992 and June 2002, which is worst 10 yrs for Indian markets, a sip in UTI Master share delivered 13% CAGR.

·      Again in flatish period of 1994 to 2004, a sip in many funds, like Franklin India blue-chip earned over 20% CAGR.

Doubts in the mind of investors

1.  Property prices rose by five to six times in last 7 years of 2008 to 2015

·      But if we translate this into CAGR, you will find that returns are much higher in good equity sip funds. As per National housing data, Chennai delivered the highest. Property bought for 40lac in 2001 is worth  2.04crore in 2015.

• But it’s CAGR is 13.6% per annum,  data from NHB from 2007- 2014

Chennai CAGR - 19.8% (3.5 times)	Pune CAGR - 14% (2.4times)
Mumbai - 13.9% (2.3 times)	Bhopal -   14 % (2.29 times)
Ahemadabad- 13.3 % (2.13 times)	And other top cities rose between 11.4% to 3.3%

·      Comparing it with SIP of middle performing funds would have earned 17% CAGR and top performers would have earned you 20%, plus tax free returns.

2.  In all India data some localities would have delivered bumper returns

·      But is it possible to identify those localities in advance?

·      This is the disadvantage of investing in real estate. For having sufficient gains; you have to know not just right state, right city, but also localities within it. The same NHB data for instance, shows that property prices in Hyderabad and Kochi have declined in last 7 yrs.

·      Selecting right MF to invest is difficult too, but you can invest based on the funds track record of 3 yrs, 5 yrs and 10 yrs. Even prices we are paying to purchase is right and transparent.

·      If we could diversify our property investments across many markets instruments, our returns would be better off. And owning large amount, most people end up taking one piece of property. That is called concentration risk.

1.   Lastly, though property has enough potential, why people become millionaires via SIP?

·      Reason is NAV of MF is available daily and there’s no lock in period.  So people are tempted to time the market. If you do the same in property, you loose your money.

·      Amount invested via SIP is in small denominations of Rs.3000 to Rs.5000 and people end up paying EMI of Rs.30000 to Rs.70000.

Remember, once you sign up for a home loan, and if the property price doesn't appreciate or if you quit/lose your job

·      You can't vary your loan amount.

·      You can't vary your EMI.

·      You can’t stop paying it.

With SIP

·      you can stop or recheck anytime.

Herewith, we are only recommending you to not waste your wealth creation phase and take a prudent decisions for your investments.

	Thumb rule in Financial Planning says that out of Rs.100 earned 1.                         Save minimum Rs.30 into wealth creation assets. 2.                         Your EMI should be maximum Rs.30. 3.                         Remaining Rs.40 is your home expenses.

 

Markets at all time high…..invest in equity or not?

• Equity is like vegetable in our thali –

We all like junk, spicy and tasty food. But it’s the vegetables that increase our resistance power and protect our body from various infections. Same is with investment in equity, like vegetables, it protects us from inflation. It helps build our wealth in long term, hence fulfilling our dreams of peaceful living.

• Balanced team gives good results –

As in cricket match, if all the players are batsman or all are only bowlers it’s not possible to win the match. To be a winner, the team should have a combination of batsman, bowler, fielder and wicket keeper. Same goes with asset allocation - equity, debt, real estate, gold all form a balanced portfolio.

• Be a part of ‘MAKE IN INDIA’–

Indians are good savers, age old tradition, in real estate and gold. But investing in equity markets, money is indirectly invested in industrial, manufacturing, service sector, which will contribute to the strengthening of our economy and build our nation.

Period	Years	Sensex	Returns	Highest/ Lowest
1979 – 2015	35	100 – 29000	18% p.a.	Highest
1979 – 2009	30	100 – 9000	16% p.a	Lowest

If we compare our Investments of Gold / FD    Vs     Equity -

	Gold / FD	Value of 1 lakh	Equity	Value of 1 lakh
Returns / value in last 30yrs	9%	13,00,000	16%	85,00,000
(-) Inflation	8%	(-) 10,00,000	8%	(-)10,00,000
Returns in hand	1%	3,00,000	8%	75,00,000

We find a huge difference between the value we get in Bank FD/Gold vs Equity. In last 30, 15, 10, 5 years or even in last 5 months equity market has corrected so many times…generally 5% to 35%, means average 15% of our money goes upward or downward. But ultimately it goes upward as our economy grows.

• Accept equity volatility as your friend & invest regularly.
• Win the investment cricket by building a good team of all asset class.
• Focus long-term on health by eating vegetables & on wealth by having equity participation. 

Indian’s are a good savers, but not a good Investors

Mutual funds are probably the ‘most misunderstood’ of all products. And it is indeed a tragic that due to ignorance a huge crowd is deprived of the immense benefit which mutual fund brings to the table.

• Returns wise mutual funds are second to none

• In terms of liquidity it almost matches to a bank account

• It is top rated in terms of tax efficiency

• The risk reward of mutual fund is perhaps the best.

• Scheme of mutual funds are for shortest of the short term needs to the longest of the long-term requirement it caters to all.

Thing to know about mutual funds:

1. Mutual fund is not an investment strictly in the direct sense. It is a trust that  collects  small amount from a large  number of investors and creates  a pool of money called mutual fund schemes  which is then invested  under the guidance  of  an expert  fund  manager.
2. Over the decades SEBI (Securities exchange board of India) and AMFI Association of mutual funds in India, admirably monitored all schemes and they are making it among the best in the world.
3. This pool of money is invested in shares or debt (Fixed income securities) or gold (ETF’S). Mutual fund is not a single product. Rather mutual funds are a whole bouquet of product’s from which we can choose depending on our needs, we can buy equity mutual funds, debt mutual funds, Gold mutual funds and Hybrid Funds.

So it is always advisable to the Investments in to more transferant, Liquid & Tax efficient Schemes through mutual funds.  

                                                  IT IS A BIG RISK OF NOT IN EQUITY

Before and after election market had gone from 21,000 to 26500. Rise of 5500 Points in only 3 months. Now everyone is thinking up to where it will go? KAHA TAK JAYEGA and what investor should do now?

SENSEX 1979  1989     100  to  800        8 times        SENSEX  1999  2009  4000  to   20000 5 times   SENSEX 1989  1999     800 to 4000        5 times         SENSEX  2009 2019   20000  to  ?           ?

       

Four main reasons for the Bull run:

       Market isn’t a satta Bajar, didn’t run on luck. It is a reflection of our economy.

In 1984 when Rajiv Gandhi came into power, our market rises 70% in next 3 years.

At this time  our principal driver (Mr Narendrabhai  Modi) come with a strategic clarity, and this driver of our  economy has a multiyear track record of past.

His body language, work without fear system clears more files of equities.

       This rebound comes after extended downtrend. Experts says one should always invest in equities when:                  

•          IIP (Industrial Production) is down.
•          Inflation and interest rate is high.
•          Fiscal deficit is high. 

All the above three scenario is now at present.

      INDIA is now a rare island of stability. In all over the world, they are facing political, financial & lower GDP issues. Compare to them our economy is at the cusp of historical positive change.

    All the sector like banking, infrastructure, power, aviation… all issues on the feet of good governance. All our ministry are working 12 hours a day, so project & files clearance become faster.

 So what investor should do?

Investor shouldn’t look for the small events, they should think for the long term changes in our economy.

Instead of looking market levels investor should focus on their goals.

It they want money in 1 to 3 years period, they should go to debt funds.

It their requirement of money is between 3 to 5 years they should select Balance funds.

And if they want to create a wealth for long term for their any goals they should do more allocation to equities.

Magic of SIP drop by drop, money every month helps you to beat inflation & risk of equity reduces.

Happy Investing