SIP RETURNS BASED ON PERIOD AND RETURNS

TARGET/GROWTH Possibility of SIP at various rate of returns
Investment Amount IF EXPECTED RETURNS IS
9% 12% 15%
Time frame(yrs) 10YR 15 20 10 15 20 10 15 20
5000 955430 1846405 3217281 1120179 2379657 4599287 1315091 3081828 6635367
10000 1910860 3692810 6434561 2240359 4759314 9198574 2630182 6163656 13270734
20000 3821720 7385620 12869122 4480718 9518628 18397147 5260364 12327312 26541469
50000 9554300 18464050 32172805 11201795 23796570 45992867.5 13150910 30818280 66353672.5
100000 19108600 36928100 64345610 22403590 47593140 91985735 26301820 61636560 132707345
200000 38217200 73856200 128691220 44807180 95186280 183971470 52603640 123273120 265414690

How debt funds score over fixed deposits

February 4, 2013 1 comment

ILLUSTRATION:
Suppose Mr. A. invests 10,00,000rs. in fixed deposits for 10 years renewing every 3-5 years
averaging 9% returns before tax. At end of 10 years because of paying tax every year in the 30%
tax slab the returns that Mr. A gets is 1888000rs. only i.e. a return of 6.56% after tax.
Suppose Mr. A invests the same amount in debt funds for 10 years and averages 8.5% returns
then his return is 22,60,000rs. before paying tax. The maximum tax he will pay if we do not
consider indexation benefit is 1,26,000rs. whereby his net returns is 21,34,000rs. and per annum
gains of 7.87% per annum after tax. In this case we are not considering indexation. In case we
consider indexation benefit the tax will be much less and net returns much higher.
All in all Mr. A, after tax has added 2134000-1888000 = 2,46,000rs. which is 24% of his original
investment by just changing his way of investing in fixed income securities using the beautiful
taxation laws given to us by the Income Tax Act.
In the same example:
If returns generated are 8.5% but taxation is calculated with indexation(approx 5%)
His tax will be 63000rs. AND after tax returns will be 21,97,000 which is 8.18% after tax.
If returns generated are 9% and tax is calculated with indexation(approx 5%)
His accumulated amount will be 2367363rs. his tax on the same will be 68368 and after tax returns will
be 2298995rs. which comes to post tax 8.68% per annum.
WHICH IS 2298995‐1888000 = Rs. 4,10,000 extra.
EFFECTIVELY JUST BY USING TAX EFFICIENT METHOD OF INVESTING ONE CAN GAIN 24 TO41% over
one’s investment in just 10 years without taking any undue risk.
THE BEST PART IS THAT THIS IS JUST ANOTHER WAY OF INVESTING IN FIXED DEPOSITS USING THE
TAXATION STRUCTURE TO OUR ADVANTAGE. THERE IS NO EQUITY INVOLVED IN 100% DEBT FUNDS.

Categories: Save Tax

RAJIV GANDHI EQUITY SAVING SCHEME – FAQ detailed

Categories: Save Tax

KEEPING CASH AND WATCHING IT GROW OUTSIDE SAVINGS ACCOUNT – AN UPDATE

 

  1. ARE YOU KEEPING TOO MUCH IDLE CASH IN YOUR SAVINGS ACCOUNTS?
  2. DO YOU WANT TO KNOW OF A WAY IN WHICH YOUR IDLE CASH CAN GENERATE ADDITIONAL INTEREST MORE THAN WHAT YOUR SAVINGS ACCOUNT GIVES WITHOUT ANY PRINCIPAL RISK?
  3. DO YOU ALSO WANT EMERGENCY ACCESS TO THE ABOVE FUND THROUGH ATM CARD WHICH CAN BE USED IN HDFC BANK ATM’S?
  4. DO YOU ALSO WANT A FACILITY IN WHICH YOU CAN TRANSFER FUNDS TO AND FROM THE FUND ONLINE THROUGH YOUR BANK ACCOUNT?

For knowing how all the above is possible please read on?

FOLLOWING UP ON ARTICLE POSTED ON 7TH OCTOBER 2011 whose link is (https://aryaadvisoryservices.wordpress.com/2011/10/07/flag-this-message-keeping-cash-and-watching-it-grow-outside-savings-account/)

Liquid funds invest in money market instruments. Money market is a market for short term borrowing and lending. This market deals with debt instruments such as certificate of deposits, commercial paper and treasury bills.
Secondly liquid funds do not have entry or exit loads so its as good as savings account.  Liquid funds give more returns than savings account normally as per the scenario of interest rates in the market.  For e.g. last one year returns of liquid funds is around 8.5%.  Whereas last 2 years per annum return is around 6.5%.
Can be easily liquidated and dividend re-investment/payout option saves tax to a person in the highest tax bracket.

Coming back to point 2 above instead of keeping lakhs of rupees in banks at a meagre rate of 4% per annum, keep them in liquid funds and let it generate returns above your savings interest rate.  Keep some amount for emergency only in your savings account and transfer other to liquid funds.

As in point 4 you can also have online facility so that after creating folio through us we will help you get the online access so that through selected banks you can transfer money online. i.e. additional purchase or even redemption you will be able to do online yourself without worrying about the time taken for redemption/purchase.

Also now Reliance has launched an ATM card for selected liquid schemes, whereby you can withdraw upto 50% of your funds in a single day (max. limit as per ATM limit per day) from any  ATM so in case of small emergencies you can withdraw from your liquid fund in any ATM.

Loss to you in the last 2 years by keeping 2,00,000rs. idle in savings account on an average is atleast 6000rs. just because you did not open  a liquid fund.  Why crib for small change when you are not interested in keeping your money wisely?  Think.

Retirement Planning Article – Part 2.

Retirement Planning article – part 1

HOW to LOSE your first CRORE RS. by NOT DOING ANYTHING

Q:  How are we unique as Indians?

A:  As Indians we dig deep into what we understand.   We cut a hard bargain for mobiles, cars and other consumption items including food items wherever we can bargain.   In case of consumption we try to decrease our expenses but do we do the opposite i.e. try to increase our savings.  At the end of the day Income – Expense = Savings or Income – Savings = Expense.  Definition is in our hands.

Q: What is the major problem in decision making in the new generation?

A: Procrastination is a complex psychological behavior that affects everyone to some degree or another.

Some of the reasons for procrastination would be that the task would seem difficult or time-consuming or the fear of what happens afterwards.  What we forget is that INFLATION never procrastinates.  It is continuously decreasing the value of your money.   Here I will show you an example of 2 people Peter and Paul who started working at age 25.  Peter believed in the mall culture so he used up all his hard earned money.  He started saving 10,000rs. per month from age 33 for his corpus to be used for retirement planning after age 45.  Paul started saving 10,000rs. monthly from age 25 itself till age 45.  Both got an annual return of 15% in equity funds.  The corpus of Peter at age 45 was 37 lakhs. Whereas Paul had accumulated 132 lakhs.

Just delaying 8 years to start a nominal investment of 10,000rs. per month,  cost a crore to Peter.

Q: We hear this term “herd mentality” repeatedly? Can you elaborate how humans behave as a herd?

A: There are typically two things which guide us to this herd mentality.  One is that we do not want to miss out on something that our peer group has and another is that in case we fail, we don’t want to be the only failures.

Q: Any instances of herd mentality which you would like to share with us?

A: Sure.  In 2007 everybody was running after everything equity, thereafter gold, then again silver and now real estate.  People want to invest in the asset which has already risen just because it is currently rising instead of doing proper asset allocation.  I have observed that out of 100 people who have good savings rate only 30 people would have made good per annum gains in their savings.  Its just because of the salary hikes and increase in business income that a major people have good amount of cash with them, not because of their investment habits.

Q: Any tips for investors?

A: Yes.  Don’t run after your investments.  Do a proper asset allocation depending on your age, risk taking ability, liquidity requirements, goals and time horizon.  Review only once a quarter.  Not every single day.  If you have spare time take up a good hobby or develop your skills which would help you in your job or business.  Chill out.  Too much stress does not do any good to your finances or your health.

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