Budget 2014 Highlights

How to calculate your Gratuity in Excel ?

                      

 How to calculate your Gratuity in Excel  ?   

Job-hopping can increase your pay, but good old loyalty also has its perks. Stay on with your employer for five years or more, and you are entitled to gratuity when you resign, retire or are retrenched. This monetary reward to be paid by your employer in recognition of your years of service is mandated by the Payment of Gratuity Act. Most establishments employing 10 or more workers fall under the Act.

The amount you get as gratuity depends on the number of years you have served and the last drawn monthly salary. Roughly, you get half a month’s Basic and DA for every completed year of service. Here’s the formula to calculate gratuity: (Number of years of service) * (Last drawn monthly Basic and DA) *15/26.

How to calculate this in Excel? Please see below:

You need to enter values only in the cells which are highlighted above.

Another positive is the favourable tax treatment that gratuity receipt enjoys - Tax treatment.

If you are a government employee, then the entire amount you get is exempt from tax. If you are not a government employee but are covered under the Act, you get tax deduction for an amount which is the lowest of the following:

a)      Actual gratuity received

b)      15 days Basic and DA for each completed year of service (according to calculations in the example above)

c)       Rs. 10 lakh

Text source: Business Line           

                                Investing lessons from Bhagavad Gita

… How you enter truth is irrelevant; whether you call your path Christian, Hindu, Jewish, Buddhist, Islam etc is not important, all paths lead to divinity. If your focus is on right action, action for the greater good, offering this action without attachment, you will arrive in the light.

The above is an extract from Gita – a timeless piece of art and knowledge. What investing lesson we can learn from this? Many, but for now let’s concentrate on three vital terms of investment first – Investment products (often discussed, reviewed and analysed); financial goals (often ignored); strategies (most ignored area).

Let me familiarise you with these three terms before we proceed.

Investment products: There are many – fixed deposit, mutual fund, equity shares, gold, property, sometime life insurance policy etc.

Financial goals: There could be many, but often very personal. Examples are – children’s education and marriage, buying a home or a second home, buying a bike or a car, going for holidays abroad, saving enough for retirement or even buying the new iPhone!

Strategies: There cannot be many. We will talk more about this as we proceed.  

Now let’s rephrase the above text from Gita this way –

… How you achieve your financial goals is irrelevant; whether you invest in equities or in debts or in both is not important. If your focus is on right strategy, strategy for achieving the goal without any emotional attachment or biasedness, you will achieve your goal.

Got it?

The process of investment for you and me, who are not millionaires or billionaires, should consist of the below 5 steps, if we take inspiration from Bhagavad Gita –

Step 1: Set your financial goals first. As mentioned above, there could be many. Once goals are set – quantify them. For example, if my goal is to secure my child’s higher education then I can quantify the goal this way – Today higher education i.e. 4 years post 10+2 costs 10 lacs; and my child will be requiring this after 10 years as he is now 8 years old; hence by that time I should be able to accumulate 22 lacs (approx.) assuming 8% inflation p.a.

Step 2: Next, check your circumstances. This includes your incomes and expenses, existing assets and liabilities, possible growth scenarios in your job or profession, any other short term goals etc. Make a note of all these.

Step 3: Now, formulate and finalise your strategy. Based on your goal details and circumstances, the right strategy can be decided. This process could be very simple and quick or very complex and time taking. But whatever is the case, one thing is sure that the strategy has to be customised for you. Importance of a strategy can very well be understood by observing the skill of a captain or a team manager in the game of cricket or football, and for that matter any game. Unless there is a proper game plan, a game can never be won. Whether it is the battle of Kurukshetra or achieving your financial goal – strategy is important. The right strategy will tell you how much to invest, for how long and what returns should your chosen investment products generate in the process. If your goal and circumstances lead to a very simple and obvious strategy, then you can do it on your own. Otherwise, it is always recommended to seek professional help in this matter.

Step 4: Build your portfolio of investment products over and around the strategy. Say, for example, if your strategy asks for an investment product which has the potential to generate average 12% return p.a. long term then go for equity stocks or equity mutual funds or properties as your surplus and existing liquid assets allow. If your strategy asks for a return of 6.5% p.a. in next 3 years, go for a fixed deposit which is giving you 9% or more interest pre-tax. So, you can see – once strategy is set, investment products will follow. Not the other way round.

Step 5: Review your portfolio and also the strategy regularly, say every year. This is because, over a period of time lots of things may change – your goal details, your priorities, your circumstances and so on. Hence review is a must.

So let us implement this very important lesson that we have just learnt from Bhagavad Gita. You can also share some source of inspiration which has worked for you. We would love to hear. 

Thanks & Regards,

Hirannya Fin Plan.

www.hirannyafinplan.com

5 tips to secure your retirement corpus 

Most people fail to save adequately for retirement since the goal seems to be in the distant future.

However, if you want to build a sizeable retirement corpus, you must start early and review your

portfolio regularly.

1. Fix Corpus, choose investment avenue 

As with any goal, the first step is to calculate the amount you want in the given time. This will depend on your current lifestyle and the number of years for which you want an income after retirement. Since building a retirement corpus is a long-term goal, your investments will vary accordingly, and the earlier you start, the better it is. So, at 35 years, if your monthly expense is Rs, 50,000 and you want to maintain this level for 15 years after retirement, you will have to invest Rs. 29,112 a month ( at an annualised return of 10% and inflation rate of 6%). However, a 45 year-old will have to invest Rs. 93,196, while a 25-year-old will have to invest only Rs. 10,174 a month. If you start saving early, ensure that at least 75% of the monthly investment is in equity. For the debt portion, you can depend on your monthly contribution to EPF and investment in the PPF. If three-fourths of a portfolio in equity is too risky for you, invest about 30% of your surplus in debt mutual funds. Review the portfolio regularly to ensure your investments is on track.

2. Repay debt before you retire

When you retire, chances are that you will have no regular income. In such a scenario, it is important that you are not stuck with any loan repayments as these will deplete your savings fast. So, if you’ve taken a home loan, make sure that you repay the entire amount before you hang up your boots, even if it means paying a higher EMI to reduce the tenure. In the case of insurance, there will be few policies that will be mandatory even after retirement, such as car insurance, but for other insurance like a health plan, ensure that you buy these early, because the older you are, the higher the premium that you will be required to pay.

3. Tweak your portfolio

Investing in equity is important for creating a retirement corpus as it gives good returns. However, as you shift closer to sunset years, reduce the equity portion and increase debt in your portfolio. This is essential because preservation of your corpus becomes more important than its appreciation. So, if you start investing at 35 years, 75% of your portfolio could be in equity, but at least five years before you retire, equity should not comprise over 40% of the portfolio. You can either use systematic withdrawal plans to shift the money from equity to debt instruments, or move a sizeable part of corpus of bank deposits. However, just because you are retiring does not mean that you have to give up on equity entirely; invest 15-20% of your portfolio in equity funds.

4. Build a contingency fund

A medical emergency can cripple the best of finances, and for retirees, it could be disastrous. Besides, there are very few health insurance options for retirees, and the ones that are available, are expensive or offer small covers. In fact, most health insurance plans end at the time of retirement. It is worse for people who depend on the health plans provided by their employers during their working lives. It’s best to buy a health plan early, but apart from this, you must also keep a contingency fund, usually 5% of the total corpus built, for medical emergencies. This should be put in a liquid fund so that it is available readily.

5. Bank on reverse mortgage

The best laid plans can go awry. Whether it’s a child’s higher education or a medical exigency, you may suddenly find yourself short of the planned retirement corpus. If you find yourself in such a situation, and own a house, the safest way to get a regular stream of income is to reverse mortgage it. Under this scheme, home owners above 60 years of age can convert a part of their self-owned home into income without having to sell it. The bank calculates the value of the house and fixes a percentage of its current value as loan amount. This is based on parameters, such as the likely lifespan of the senior citizen and his spouse. Typically, the loan amount is 60-70% of the market value of the property, which will earn you a good income. After you and your spouse die, the house is sold by the bank to recover the loan amount, and the balance is given to your heirs. Alternatively, your heirs could buy the house from the bank.

   

Source by ET

Best Regards,

Hirannya Financial Planners

Retirement Planning is most important part of your life. Retirement Planning

Nothing is permanent in this world. Everything that comes will definitely go including us. But we don’t know when. Apart from this everybody would like to live life peacefully as long as they live. You have to decide whether you want to depend on somebody or live on your own without compromising your life style throughout your life. That is why it is best to put our best efforts and save more for the future. The important thing you have to begin with is to have a retirement plan for you today. Retirement Plan is very important in our life. The earlier we construct the structures to attain a wonderful retirement the better for us. Saving for your retirement is one of the toughest and most vital things you will do in your working years. Because you have to save for your children's college education, paying your home loan, children’s marriage, buying cars and all the other everyday costs.  Everyone has their own retirement dreams as well. The thumb rule is that you will need approximately 70% to 80% of your pre-retirement   income   to maintain your lifestyles in retirement. However, depending on your own situation and the type of retirement you hope to have, that number may be higher or lower.

There are lot of factors one should consider for retirement savings.

Retirement Age: This is the first factor you should consider at what age you expect to retire? In reality people say that they will work even after retirement from current job. Here you have to consider like health problem, job instability, or change of workplace etc. Assume that your retirement age is 60 then earlier you retire you need more money throughout your retirement life. It is best to prepare for unanticipated events that may force you for an early retirement. Life Expectancy: Nobody knows the life expectancy. There are few factors which may give     you a hint. Your family history – like your parents and your relative's current age or how long they lived. Common diseases in your family.  Your past and present health status etc. These are all the factors you have to consider when calculating your life expectancy. You will approx find the number of post retirement years you will spend. Inflation: Inflation is one of the main factors while you save for your retirement. Just to save for retirement you start saving but forgot the impact of inflation then your savings will not sufficient. If you don't account inflation while saving then inflation will reduce your value of your savings. So it is very important that your saving has to exceed inflation. Your Lifestyle: Different lifestyles are being adopted by different people. Generally Lifestyles are usually simple for most the people. But it is very important that what type of retirement lifestyle you would like to enjoy. Like travel, or hobbies you would like to pursue etc. These are all questions can help you to decide your required corpus for your retirement. Many people tell that they would like to work part time after retirement. But the answer is practically not possible. Health: Nowadays it is very important to consider the cost of health care. Health care costs are rising every year than inflation. People get health insurance cover from employers generally till retirement. Very few offers this after retirement. If you are not taking this in to account then it will eat your savings later. It is better advisable to buy long term health insurance for your better tomorrow.

How much you need at the time of Retirement.

POWER OF COMPOUNDING: If you start investing early for your retirement you can gain the benefit of POWER OF COMPOUNDING!

Let us explain how. Assume if you need to create retirement corpus of Rs/1.5 crs at the age of 60. Today you are 30 yrs old. You have 30 yrs left for your retirement. If you start investing Rs. 2,140 /per month for the next 30 years then assume at the rate of 15 per cent you will have a corpus of Rs. 1.5 crs. Take the other example suppose if you don't start now and at the age of 45  you decide to start investing then to have a corpus of Rs 1.5 crs you will require an investment of Rs 22,160 per month!  Now see the power of compounding! The benefit of starting at early age is you have the TIME with you and you can save with small amount and still you can achieve the retirement corpus. How to calculate your retirement corpus:

The following factors are taken in to account when calculating your required retirement corpus .

Your Life expectancy and years left after your retirement. Expected return on retirement corpus. Inflation rate. Your expected monthly/yearly expenses. Then after calculating your required retirement corpus we have to find how much money you have to save to get that required retirement corpus.  The following factors are taken in to account.

How many years left for retirement?

Expected rate of return during this period Available current investment corpus.

After considering all these points you should have a better understanding of how much corpus required at the time of retirement.

Don’t spend your retirement years by depending on somebody. Plan now and start investing to reach your retirement dreams.

Thanks & Regards,

NITIN L. GHADGE

 “Indians are great savers but bad investors”

Money represents different things to different people. For some, it could mean financial independence. For others; it could be security or the means to enjoy a desired standard of living. All of us work hard to ensure that we have enough money at the end of the day. And we invest this money in a variety of investments so that it can make even more money. In a way, saving is a postponement of happiness – the investor commits to consume less today in the hope that he will be able to consume more in future. But do we save and invest in the right manner? Is there a plan of action that guides our investments? Many investors randomly put money into various instruments without considering what they are putting away the money for. Some will spend more time planning a vacation than deciding how to invest their life savings. Most people buy assets as and when they become hot property. But this approach to investing is self-defeating. The investor is likely to realise some years later that his portfolio has not taken him anywhere. Not surprisingly, financial planners often get desperate pleas for help from first time clients whose investment portfolio is usually a complex web of financial products hoarded without any thought. “Indians are great savers but bad investors”. We don’t understand the importance of attaching investments to our goals.

Investing requires a methodical and disciplined approach. You need an investing roadmap so that you reach your financial goals. This requires you to look at the big picture. Ask yourself, why are you investing in the first place? Only after you determine your goals, and the time horizon for achieving each one of them, should you choose the appropriate investment to reach these goals.  ”When investments are linked to your goals, it makes you a focused investor. One is mentally prepared to deal with volatility so that abrupt decisions based on prevailing market conditions can be controlled.”

Thanks & Regards,

Nitin L. Ghadge.