Heres How To Plan At Different Stages Of Your Life

Investing your money is a process that requires planning and realigning your goals and investments in a manner that you have sufficient resources at different stages of your life. Here is what can help you achieve this efficiently.

Hemant Rustagi 
Chief Executive Officer, Wiseinvest Advisors 

Young age 

At this stage, there are two important challenges that are faced by investors. First, income levels are low, and second, there is a tendency to think that there is enough time to start investing. The truth, however, is that more time you give your money to grow, the more you benefit from the power of compounding. 

Besides, not having a large sum to invest is not a reason for not investing as there are options like mutual funds where one can begin by investing as low as Rs 1,000 p.m. through SIP.

Remember, delaying investment at this stage can prove very costly. For example, if one starts investing Rs 5,000 pm in equity funds through SIP at the age of 30 years and continues investing till the age of 60, the expected corpus would be around Rs 1.80 crore at an assumed annualised return of 12%. However, if the investment is delayed by 10 years, the corpus would be around Rs 50 lakh at the age of 60

Investing in the right asset class and the right option can make a huge difference to the end result. Young investors must ensure that they donot invest heavily in traditional options like FDs, small savings schemes and investment-cuminsurance products. Mutual funds can be an ideal option as they allow them to invest in asset classes like equity, debt and/or both. A goal-based investment process at this stage ensures that investments are directed in the right manner and it becomes easier to track the portfolio. The habit of budgeting at this stage can ensure full control over their finances. 

Middle-age 

By the time one reaches this stage, some of the goals are already achieved and some crucial ones like children’s higher education, marriage and retirement planning require investments to be made in a manner that ensures there is no shortfall. If investments are being made conservatively, there is still time to take stock and move to efficient investment vehicle like mutual funds. This is the right time to review life and health insurance. 

For those who may require money for their children’s higher education, realigning the portfolio becomes a key factor. The focus should remain on investing as much as possible for retirement planning. Since there is a reasonable time left for retirement, equity as well as hybrid equity funds can still play a significant role in the portfolio. 

Post retirement 

Generating regular income for the retirees can be quite challenging as traditional options like fixed deposits and small savings schemes offer very low and tax-inefficient returns, while market-linked products of mutual funds, though potentially better, have the attendant risks. Hence, the key is to build a portfolio wherein both these categories of investments have a role to play. 

After retirement, there is a tendency to avoid taking any risk on retirement corpus and hence the money is invested in traditional investment options. Then, there are those who invest in real estate thinking that rental income will help them meet their regular income requirement. However, low and tax-inefficient returns from these options makes it difficult for them to keep pace with rising cost of living and hence they have to compromise at very crucial stage of their life. While traditional options will always have a role to play, there is a need to look beyond them. 

Mutual funds, despite being marketlinked option, can provide an answer to both the quantum of income as well as tax efficiency of returns. A combination of equity savings, balanced advantage and hybrid equity funds can help generate regular income as well as growth to tackle inflation. Considering that dividend distribution tax of 10 percent can make a dent in regular income generated through dividend option, opting for growth option for a year and then setting up a Systematic Withdrawal Plan (SWP) to generate regular income can not only reduce the impact of tax as long-term capital gains up to Rs 1 lakh are not taxable,but also ensure steady inflows despite the market vagaries.