Tag: expenses

How a single woman can achieve retirement goals with ease

Personal Finance

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Meenakshi, aged 48, is single and wanted to ensure she retires when she turned 60. Her goals were limited. She had enough resources and cash flow from her point of view.

But she was a bit apprehensive on her financial condition towards satisfying her needs and wants. Her assets and cash-flow statement are listed below (see table).

At her age of 48, at first look this seems to be a reasonably sound net worth. The value of land parcels will only be known when she sells. Being single, she felt uncomfortable holding such land parcels. She felt that her relatives were expecting some ‘goodwill’ out of every sale of land. This increased the uncertainty factor in the net worth calculation. To please her relatives she felt she had an emotional binding to do what they expected.

Her expenses, at the time of planning, were ₹60,000 per month. On a relative scale, for a middle-class woman this definitely is above average. But she was not willing to compromise on her lifestyle. In addition to this, being an avid traveller, she would incur ₹2 lakh every year when her travel plans resume.

We analysed her risk profile, and the results showed her appetite in “balanced” category. She was able to appreciate long-term investing and the risks associated with that.

Review & recommendations

1. Emergency fund should to be maintained as fixed deposits for ₹7.2 lakh

2. Medical emergency fund to be maintained as liquid funds would be for ₹10 lakh. Being taxed only at redemption, these funds would help her in tax efficiency.

3. Her high priority goal was retirement at her age of 60. At current cost, her expenses in the first month of retirement would be ₹1,35,131 at 7 per cent inflation. She wanted to plan for her retirement corpus with a life expectancy of 90, post retirement inflation of 7 per cent, and expected return of 8 per cent.

4. To ensure adequate financial assets are in place to aid retirement life, salary income, provident fund accumulations (PPF and EPF) and previously held mutual fund investments were stringed together. This should provide her a corpus of ₹2,71,36,851. But her retirement corpus requirement would be ₹4,26,46,779. She was advised to invest ₹57,000 per month through systematic investments in equity mutual funds till her retirement age of 60.

5. She was advised to invest ₹10 lakh from cash in hand towards her “post retirement hobbies fund” in equity mutual funds.

6. If she continues her employment, she would be able to comfortably reach her goals of retirement, health and vacation needs by way of financial assets assuming she adopts the above-mentioned suggestions.

7. She was also advised to exit her real estate assets in a phased manner and accumulate in financial assets.

8. She will be using these sale proceeds partially to fund education needs of her relatives’ children and to other needy group over the next 10-12 years. This will help her manage her time post retirement. She was advised to establish a charitable or private trust to manage the activities if she plans it as a continuous activity.

9. She also wanted to contribute to the society in building social infrastructure at her hometown with her income in future. Ensuring adequate liquidity by way of optimum exposure to financial assets would help her to stabilise her post retirement life. She would be devoid of liquidity issues and emotional issues mentioned earlier. By consolidating her immovable assets, she would be in a position to provide for her nobler goals. This would in turn help her to spend time on such activities without having to carry the burden of liquidating immovable assets at short notices.

The writer, Founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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Capri Global Capital Q2 standalone net dips 21% to ₹41 crore

Banking & Finance

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Capri Global Capital Ltd (CGCL) reported a 21 per cent year-on-year (yoy) drop in second quarter standalone net profit at ₹41 crore against ₹52 crore in the year ago period as growth in total expenses outstripped growth in total income.

While total income was up 16 per cent yoy at ₹171 crore (₹147 crore in the year ago quarter), total expenses rose 48 per cent yoy at ₹114 crore (₹77 crore).

The non-banking finance company’s loan portfolio (standalone) increased 21 per cent to ₹3,797 crore and investment portfolio was up 33 per cent to ₹553 crore.

During the reporting quarter, the company implemented resolution plans in the case of 571 accounts aggregating ₹180 crore under the RBI’s August 6, 2020, circular on “Resolution Framework for Covid-19-related Stress”.

CGCL’s consolidated net profit ( including results of Capri Global Housing Finance and Capri Global Resource) declined 14 per cent to ₹52.5 crore (₹61 crore).

Disbursals (consolidated: MSME, construction finance and housing finance) jumped over three times to ₹585 crore during the quarter against ₹190 crore in the year ago quarter.

Assets under management (consolidated) was up 27 per cent at ₹5,271 crore (₹4,147 crore).

Also read: Capri Global launches ‘Prime’ affordable housing loans

Net interest margin (NIM) declined to 9.6 per cent from 10.6 per cent in the year ago quarter. However, NIM in the reporting quarter was up vis-a-vis preceding quarter’s 9.3 per cent.

Gross stage 3 (credit impaired) assets rose to 3.26 per cent of gross advances against 2.18 per cent in the year ago quarter. However, the proportion of such assets in the reporting quarter was down vis-a-vis preceding quarter’s 3.45 per cent.

Net stage 3 assets rose to 0.61 per cent of net advances against 0.12 per cent in the year ago quarter. However, the proportion of such assets in the reporting quarter was down vis-a-vis preceding quarter’s 0.81 per cent.

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How a retired professional can provide for his family and also give back to society

Personal Finance

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Chandrasekar (65) retired three years back. He wanted to review his financial position because of his changed needs and new priorities. He was also considering transfer of wealth to the next generation.

He and his wife Rama (61) live in Chennai. As a finance professional, he has good understanding of various products and the risks associated with such products. As with many of us, the Covid-19 pandemic has spurred him to be sensitive to unforeseen challenges.

His assets comprised financial assets and real estate. His total net worth was estimated to be ₹15 crore excluding self-occupied house in Chennai. He is physically active and reasonably healthy. His wife is ageing and is on regular medication for a long-term ailment.

Defined financial goals

Basis his changed priorities of increasing liquidity, seeking regular income and wishing to bequeath assets to his son and daughter, we helped him define his financial goals as below:

1. Set up a emergency fund to cover 12 months of living expenses in fixed deposits

2. A medical fund for a sum of ₹50 lakh with enough liquidity through staggered fixed deposits and liquid funds

3. Automate his charity needs with an endowment fund of ₹1 crore. Income earned from this endowment fund will be spent on the education needs of deserving students and families. This was made possible with a trust structure.

4. He was advised to use different structures to transfer his wealth over a period and prepare a will accordingly.

5. Towards ensuring a regular income from his assets for the family expenses, we advised him to segregate his expenses into 2-3 buckets. First one to cover his living costs, which also included support staff and emergency care expenses. He estimated the amount to be ₹75,000 per month. Second was to spend for his luxury needs (travel and appliance purchases), estimated at ₹5 lakh per annum. Third one would cover social needs such as meeting and gifting friends and family. He estimated this to be at ₹3 lakh.

He preferred a conservative approach for his own needs and requirements but wanted to allocate reasonable growth assets for his other needs such as charity, and transfer of wealth to children. . For self, he favoured fixed deposits and safe investment avenues though he might be paying higher taxes, with safety and liquidity being top criteria for choosing an investment avenue.

Review and recommendations

1. We advised Chandrasekar to reserve ₹9 lakh in FDs with auto renewal option in the bank closest to his residence, towards his Emergency Fund.

2. To create a medical fund of ₹25 lakh each for him and his wife, again in FDs in a staggered way.

3. His retirement living expenses were at ₹75,000 per month. Estimated inflation would be around 7 per cent and life expectancy for him and his wife was taken as 100. Post tax return from investment products was estimated at 6.5 per cent per annum. Though he was aware of the burden of taxes and the impact on returns, he wanted to ensure he had enough funds to manage his expenses in the safest possible way.

He was advised to reserve ₹3.84 crore and the basket of products were selected from Government Bonds to annuity plans. The product basket ensured that it required minimal management from him or his spouse.

4. To cover his living expenses fund, we advised him to retain approximately 50 per cent of the corpus to wealth fund for his needs. This was invested in a balanced portfolio with 50 per cent in index funds and 50 per cent in fixed income securities.

5. He wanted to withdraw ₹8 lakh every year for the next 20 years and the corpus needed for the same was ₹1.6 crore.

Any income received from this corpus could be used as per inflationary additions towards his needs or he had the option of transferring the excess to charity.

6. Charitable trust was created with identified beneficiaries and the charity automated with minimal human intervention.

7. Recommended a combination of will and private trust and other alternate options to transfer wealth to his children in case of any unfortunate event. Enough care has been taken to protect his wife’s interest in managing her lifestyle and expenses for her life time.

The pandemic has induced fear in senior citizens about handling money, health needs and wealth transfer.

This gentleman, with hands-on experience in various financial products, opened many doors with much clarity.

Here was one who went the extra mile to ensure personal stability, and well-being of those around him. Also, seeking the help of professionals adds value to what you want to accomplish.

The writer, founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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Covid-19: Out-of-pocket expenses down at about 30% of claim amount

Banking & Finance

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Insured people are seeing a drop in out-of-pocket expenses for Covid treatment in recent months, but they still have to shell out about 30 per cent of the claim amount.

Data with the Insurance Regulatory and Development Authority of India (IRDAI) reveals that, on an average, about 71.4 per cent of the claimed amount for Covid-19 treatment is settled by insurers while the remaining 29 per cent has to be paid out of pocket by the policy-holder.

The data reveals that of the average claim amount of ₹1.33 lakh, as much as ₹95,512 is settled through insurance.

Also read: Insurers settle Covid claims worth over ₹15,000 cr

Earlier, the out-of-pocket expenses were higher and could be to the tune of about 40-45 per cent.

Insurers say that there are various factors which lead to out-of-pocket expenses for customers during Covid treatment. However, it has come down significantly due to lower costs of consumables and standardised treatment protocols.

“Disallowances are around four main buckets. The first one is when the product runs out sum insured,” said Rajagopal Rudraraju, Senior Vice-President and National Head – Accident and Health Claims at Tata AIG General Insurance.

Reasons for out-of-pocket expenses

According to him, one of the biggest reasons for out-of-pocket expenses by customers is that the amount of treatment exceeds the sum insured. “The insurer cannot do anything in such a case. In normal claims, this issue of sum insured running out comes up less frequently but is more common in Covid-related health claims,” he noted.

The cost of consumables such as PPE kits and gloves has also come down but depending on the insurance cover, can add to the out of pocket expenses. “During the peak of the pandemic last year, it was up to 13 per cent to 15 per cent of the bill. Now, it is eight per cent to seven per cent of the bill,” he said.

In regular health insurance claims, the cost of consumables is usually two to three per cent of the bill.

The third reason for out-of-pocket expenses tend to be the sub-limits in the policy, such as those for co-pay. There are also technical reasons regarding medications that lead to such disallowances.

“Treatment costs for Covid have gone down and so have the out-of-pocket expenses for most policy-holders who have to go in for hospitalisation. There is much more standardisation of procedures and costs,” noted another insurer who did not wish to be named on the issue.

Parag Ved, President and Head, Consumer Lines at Tata AIG General Insurance noted that the sum insured for health covers has also increased to about ₹5 lakh on average. While, to some extent, this is due to higher treatment costs of Covid, there has also been a higher medical inflation in the last three to four years.

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Three smart money moves you can make this financial year

Personal Finance

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A new financial year is upon us. Yet, 2021-22 gives that deja vu feeling. The Covid pandemic refuses to go, financial markets remain volatile, and hopes remain high that the good ol’ times will be back. The new fiscal requires you to be smart and have a handle on savings, investment, taxes, expenses and much more. Here is a blue-print on the key moves you need to take so that money matters are always under control.

Be investment wise

A new financial year requires a fresh assessment to check whether your investments are on track to meet your long-term goals. You must check if there is a need to change or rebalance the asset-allocation mix for optimal results, in the light of developments on the personal front.

Also, a new financial year is a good time to do a check on the health of your portfolio. Financial markets, especially stocks, have done very well in the last one year or so. If even in this situation, some market-linked investments have not well, find out for reasons. If you find a pattern of continued poor performance, weed out under-performers.

Be a regular: If you are in the old tax regime and among those who struggle to meet the deadline for tax-saving investments every financial year, now is the time to get smart. Instead of doing tax-saving investments at the end of February/March 2022, start them from April 2021 for ELSS, NPS, PPF, etc.

Just like your EMIs, you have the option to spread out your investments regularly over the next 12 months in most of these products. This will work well if sometimes, you don’t have enough funds to do the investments at one go.

Besides, delaying the investment process to the end of the year will make you prone to mistakes in the form of choosing the wrong products. Also, if you do equity-linked investments through SIPs, you can average your costs better and avoid risk of timing your investment.

Use tactical opportunities: Instead of frittering away the annual bonus , ex gratia or other one time payments that some employers give during this time, this new financial year offers you the chance to stock up on small-saving schemes and voluntary provident fund. If the circular on the new small savings rates issued on March 31 (withdrawn later) is any indication, interest rates may go down further, before moving up.

Hence, for conservative investors to whom the sovereign guarantee offered by the small-saving schemes is important, schemes such as NSC is a good bet (offers 6.8 per cent) compared to similar tenure bank deposits.

As per the new PF rules, interest on cumulative annual employee contributions above ₹2.5 lakh shall attract income tax at the applicable tax slab, wherever employer is also contributing. Nevertheless, despite the tax, the returns on the VPF continue to be attractive when compared to the interest rates being offered on other debt instruments and it will be a smart move to use this window to your advantage in the new financial year.

Contributions to both the NSC as well as the VPF is eligible for deduction up to to ₹1.5 lakh under Section 80C.

Prep for taxes

The end of FY2020-21 and the start of FY2021-22 have different implications from tax filing point of view.

To do tax return filing for the previous fiscal, you will be required to collect all the necessary documents including details of any foreign asset/income.

Though one may argue the tax filing deadline is some months away, it will not hurt to check Form 26AS online to check whether tax deductions for FY2021 are properly credited. Remember to cross check the Form 16 that will be sent by your employer soon. Start collecting capital gains statements for investments and account statements for bank accounts. Dividends are taxable so keep a note on them too.

For the new financial year, there is a tax-related task you can do right away.

Submit a pragmatic investment declaration, basis on which your employer will deduct taxes each month. Avoid a casual approach towards submission of investment declaration such as mentioning maximum contribution for Section 80C, Section 80D when you very well know you can’t invest so much.

While it may lead to a higher take-home salary now due to lower tax deduction, what matters is actually doing those investments at the end of year. Failure to submit investment proofs to your employer could lead to substantial tax outgo in the last 2-3 months of the year and pinch your disposable cash.

Rainy day plans

A new financial year is also a good time to do a check on your emergency funds and insurance cover.

The Covid pandemic has shown the need to have a contingency fund. With salaries cut and expenses rising, many had to break their piggybank to survive last year. This underlines the need to stash away money in the savings pool so that 6-12 months of zero/low income does not impact household finances.

Also, take a re-look at life as well as health insurance needs at the beginning of the financial year. Over time, the needs and lifestyle of your family change. Hence, your insurance cover should also change accordingly. Significant life-changing events such as marriage, the birth of a child, home loans, income change etc. increase your responsibilities. Raise your life coverage amount when renewal comes up this fiscal.

Similarly, medical costs for elderly parents, newborn children and hospitalisation can pinch your pocket. To tide over inflation in medical costs, widen your health cover if necessary.

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