Money Matters

  • Ifthikar Bashir
  • Publish Date: Jan 8 2018 2:06AM
  • |
  • Updated Date: Jan 8 2018 2:06AM
Money Matters

I am a private sector employee and not entitled to a pension. I intend to go for a unit-linked pension plan for 20 years. Is that a good option?

– Arif Wasim, Batmaloo Srinagar

 

Unit-linked pension plans are pension schemes with inbuilt insurance. Don’t buy insurance products for investment. It’s always better to buy a pure term plan to get an adequate insurance cover. ULPPs give a low return and are expensive too. Since you don’t have a regular pension from your employer, it makes sense to divide your investment amount between assured return schemes for capital security and, depending upon your risk appetite and equity exposure, some good diversified equity funds.

 

My husband and I want to invest in mutual funds jointly.  What are the tax implications if we hold Mutual funds jointly? 

-- Aaliya Majid, Rajbagh Srinagar

 

Holding your mutual fund folios jointly with a spouse eliminates the need for a will and a nominee. The tax implications are straight forward. The first holder of the investment gets all the tax breaks in the case of a tax-saving (ELSS) fund. For the taxation of long term or short term capital gains, only the first holder is liable.

In a nutshell, in case of joint holding of a mutual fund, the first holder gets tax exemptions, if applicable, and he needs to pay any taxes, if required.

 

I have been thinking of investing in equities for a long time now. Can you suggest what is the best time to invest in equities?      

-- Sajad Bashir, Kulgam              

 

There is no good or bad time to invest in equities as long as one’s investment horizon is around five years and if one does not get swayed by market ups and downs. Equanimity not genius, leads to riches in the market.

 

Is it better to invest in New Fund offers (NFOs) rather than existing funds?

 --  Ab Quyum, Lal Bazar Srinagar

 

No, when you invest in a mutual fund (existing), you have its past track record. This is not so much about what kind of return the fund has given in the past but primarily how it has behaved at different points in time, so you are prepared for what the fund has done and what principles it follows. When it comes to a new fund, you don’t know anything about it. Unless there is a special kind of fund which is not available to investors earlier, NFOs are avoidable.

 

I am 23 years old and have recently started working for a private sector company . My job profile is non-pensionable. How can mutual fund Systematic Investment Plans (SIPs) help me in my retirement planning? 

---- Afaq Ajaz, Gurgaon

 

The best time to start saving for retirement is when you start working. Alas, at that stage many of us don’t realise the importance of retirement planning.  With so many spending avenues available, saving is the last thing that comes to our mind. But consider this: if you start doing a monthly SIP of Rs 10K in an Equity fund (that returns 15% yearly) when you are 23 yrs and keep increasing the amount by 10% yearly at 60 yrs, your accumulated corpus will be about Rs 40 crore.

Does this amount look magical to you? It isn’t. It is simply the power of compounding and discipline. While your equity fund does the compounding for you, SIPs, bring discipline to your investing. They help you build a large corpus from small investments over a period. Naturally, the earlier you start, the smaller the investment you need to reach your estimated corpus. For a middle-aged person who hasn’t started investing yet, a larger SIP is needed to reach the same goal amount.

For most of us, doing SIPs in an ELSS or tax-saving fund up to the tax-exempt limit (which is currently Rs 1.5 lakh yearly) can help build a retirement corpus while also saving tax. Beyond Rs 1.5 lakh, a couple of good Multi-Cap or diversified equity funds can do the job.

No matter what age you are, SIPs can help you build a sizable retirement corpus from small investments over time.

 

I want to invest a lump sum in hybrid or balanced funds through Systematic Transfer Plans (STPs) . What should be the duration of the STP?

 ---- Mir Shahid, Sanat Nagar Srinagar

 

Systematic Transfer Plan (STP) is a plan that allows investors to give consent to a mutual fund to periodically transfer a certain amount / switch (redeem) certain units from one scheme and invest in another scheme of the same mutual fund house. Thus, at regular intervals an amount/number of units you choose is transferred from one mutual fund scheme to another of your choice. This facility thus helps in deploying funds at regular intervals.

There is no rule as such which defines the duration of a STP. Generally speaking, one should be guided by the amount of money and how crucial it is for you. If you are going to invest your annual bonus, then it should be invested over the next three-six months. That would be good enough.