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Saturday, 30 December 2017
Are you on track for a large retirement corpus?
A 35-year old, having a Rs 70,000 monthly expense, will need Rs 8 crore at retirement
'How much money should I have when I retire?' This is one of the most common questions that financial advisors and planner face when someone new approaches them for help with their future financial goals.
'How much money should I have when I retire?' This is one of the most common questions that financial advisors and planner face when someone new approaches them for help with their future financial goals.
There is no easy answer to this question. The retirement corpus__the amount of money one would require to have a peaceful retired life__varies from person to person, depending on a host of factors, primarily the lifestyle one wants to maintain post retirement and hence the related expenses, said Sanjeev Govila, founder of Delhi-based Hum Fauji Initiatives that provides financial services solutions to people from the armed forces.
According to Govila, one of the accepted rules in financial planning is that while calculating post-retirement expenses, it is estimated that soon after retirement the person retiring will need to spend about 70% of his/her expenses just before retirement. By spending this much the person should be able to maintain his pre-retirement lifestyle. From then on, it is also estimated that every year his/her expenses will rise by the rate of inflation. And the life expectancy is 85 years. "So in effect, at the time of retirement the person will have to build a corpus that will sustain him for the next 25 years, post retirement," Govila said.
For example, if a person is 35 years old and has a monthly expense of Rs 70,000, when he/she retires at 60, he/she will require a corpus of nearly Rs 8 crore to maintain the same lifestyle that he/she has now. The retirement corpus will jump to Rs 11.3 crore if the same person has a current monthly expense of Rs 1 lakh.
The retirement corpus, at present, looks very large but it's pure calculations based on practical assumptions. For example, at 6.5% rate of inflation, your monthly expenses would double in less than 12 years. And at 7.5% rate, this would take less than 10 years to double. So for a 35-year old person with a current monthly expense of Rs 70,000 and a market rate of inflation at 6.5%, it would go up to nearly Rs 3 lakh by the time he/she retires. That's about Rs 36 lakh per annum. To provide for that large an amount, the corpus should also be large enough, financial advisors say.
So what's the solution? According to Govila, if you have age on your side, that is if you start planning for your retirement early, you should invest more in equities and as you grow older, you should shift part of your corpus into debt.
Also during the accumulation phase__when you are earning and is able to invest for your future goals__the trick is to invest through the systematic investment route, financial planners and advisors say. For example, if you invest Rs 10,000 per month in an equity fund with an expected annual return of 15%, the corpus at the end of 20 years will be about Rs 1.5 crore. If you increase the amount to Rs 25,000 and invest for 25 years, you could expect a Rs 8.2 crore corpus.
So the numbers, although they look astonishing, are very much achievable, they say.
(Coirtesy- Times Of India)
'Banks imposing unreasonable fee for breach of minimum balance'
Delhi,28 (PTI)-Public sector as well as private banks have been imposing unreasonable charges on customers for failing to maintain minimum balances in their savings accounts, a study by an IIT-Mumbai professor has claimed.
The study, by Ashish Das, showed that some banks like Yes BankBSE 0.46 % and Indian Overseas Bank have been imposing penal charges of over 100 per cent per annum on shortfall in maintenance of minimum balance in customers accounts.
The Reserve Bank guidelines mandate that charges for non maintenance of minimum balance in savings bank accounts be "reasonable and not out of line with the average cost of providing the services".
According to the study: "With many banks charging at an average high rate of 78 per cent per annum of the shortfall amount, it makes the whole regulation of reasonableness of charges as per cost quite shallow".
As per the data provided by Das, Indian Overseas Bank imposes annual charge of 159.48 per cent on shortfall in minimum balance. Yes Bank charges 112.8 per cent, followed by HDFC BankBSE 0.13 % (83.76 per cent) and Axis BankBSE 1.91 % (82.2 per cent).
The largest lender SBI charges 24.96 per cent penalty, says the study.
The minimum balance requirement in different banks range from Rs 2,500 to Rs 1 lakh.
The RBI, the study said has formulated the penal charges rule with an objective of bringing in fairness from the customers' angle.
"Thus, it is time to plug the regulatory and supervisory gaps in a holistic manner and formulate clear guidelines on the formation of slabs and how to measure reasonableness of charges based on costs of funds," it said.
Ashish Das is a professor of statistics with the Indian Institute of Technology Bombay, Mumbai.
(Courtesy: Economic Times)
Tuesday, 12 December 2017
Tuesday, 14 November 2017
Thursday, 21 September 2017
LIC topped list in agent productivity in FY17
The country’s largest insurance company, Life Insurance Corporation of India (LIC), had the most productive agency force in FY17 with each agent selling 17.12 new policies during FY17. According to a study on the Life Insurance Industry in India in 2017 by Fintelekt, HDFC Life had the best average for the private sector at 6.52 new policies per agent.
The report said that while the number of exclusive or tied agents engaged by life insurance companies has seen fluctuation over the years, the number of agents in FY17 was lower than that in FY13.
“This has been attributed to the high churn among agents as well as the efforts of life insurance companies in recent years to improve productivity and weed out under-performing agents,” the report said.
Of the 20,88,519 agents employed in FY17, more than half or 11,31,181 agents, were engaged by LIC. Among private sector companies, Reliance Nippon Life had the highest (1,62,276) agents.
In terms of agent productivity, among private sector companies, apart from HDFC Life, SBI Life was at the second best at 4.67 policies per agent.
However, the report said that despite the reliance on bancassurance as the main distribution channel, bancassurance led companies engaged a sizeable agency force in FY17, (4,88,886) among the 11 bancassurance-led companies (in the previous table), as on March 31, 2017.
Bajaj Allianz Life had the highest average ticket size per agent of Rs 33,008 in FY17, according to Fintelekt. Among the bancassurance-led companies, ICICI Prudential Life had the highest average ticket size Rs 23,359 for retail agents.
As per current insurance regulations on bancassurance, banks are allowed to sell products of multiple insurance companies. Fintelekt research showed that LIC has the maximum number of tie-ups with 60 banks, followed by SBI Life with 30 banks.
Source-Money control.
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