Wednesday, February 16, 2011

How to retire happy with Mutual funds

Nikhil Somani, a 25-year old engineer working for a reputed Indian company, is a firm believer in financial planning and is already making regular investments for his immediate goals that include buying a car (in the next two years) and a home (in the next five years). And he vows to follow these financial plans religiously in order to meet all the goals. Just like any other average Indian, Somani too wants to retire at 55 and lead a comfortable life thereafter.

More importantly, he has planned for it too and is investing Rs 10,000 p.m. towards it. However, Somani is an isolated case and most youngsters keep postponing their retirement planning. “Many a times, investors are tied down with meeting short-term goals like wedding, buying a house and keep postponing retirement planning,” says Anup Bhaiya, MD and CEO, Money Honey Financial Services. And the solution is to do the financial planning in a holistic way. Remember, retirement planning is a subset of your overall financial planning.

START EARLY

There is another advantage of starting early that is known as the power of compounding (i.e., the money you save in the initial years generates compounded returns for a very long time). For example, to reach a retirement corpus of `1 crore, at 12% rate of interest, you will have to invest Rs 43,471 per month if you have only 10 years in hand. But if you have 35 years in hand, you will reach the same target by investing just Rs 1,555 per month. In other words, the 20s and 30s are probably the best time to plan for retirement — of course, along with other financial and career goals.

EQUITY ROUTE

The first thing that you need to decide is what corpus you would need at the time of retirement. “It is important to first quantify how much you will need to maintain your lifestyle at the time of retirement,” says Amar Pandit, CEO of My Financial Advisor. Quantify how much you need to spend to enjoy your current lifestyle. Assuming inflation in the 6-8% range in the long run, you can arrive at the amount you need at the time you retire.

Very high inflation on the one hand and the absence of a social security system on the other hand makes maintaining your lifestyle post retirement a big challenge. Therefore, it is imperative that the retirement corpus has to be invested in products that can generate maximum returns in long term. It is proved historically that equity generates maximum returns among all asset classes, so investors can use the equity funds/balanced funds to build their retirement corpus.

EQUITY FUNDS

Though you can invest directly in the stock market to generate your retirement corpus, the mutual fund route is more convenient. “The mutual fund route is more transparent and comes with the least costs. It also offers liquidity, making it a good candidate for long-term investment,” points out a wealth manager with a foreign bank.

BUILD A PORTFOLIO

“Depending on where you stand today and your risk-taking ability, you should construct a portfolio of funds with a long-term consistent track record,” explains Pandit. Most financial planners recommend diversified equity funds if you have more than 20 years to go for your retirement. Since Somani has full 30 years to retire, his retirement plan can be made of three equity mutual funds. “We recommended him to invest `10,000 per month through SIPs in three equity mutual funds namely, HDFC Equity Fund, Franklin Prima Fund and DSP Equity Fund,” says Bhaiya of Money Honey Financial Services.


The assumption here is simple. Assuming a 15% return from equities per annum for the next 30 years, `10,000 per month invested will give him a corpus of `6.92 crore. Assuming that Somani will shift his corpus entirely to debt at that age, and earn a 6% post-tax return, his interest income would be `3.46 lakh per month. Now, we come to the expense part. Somani’s current monthly expense is `30,000 per month. Assuming a 8% inflation, at the age of 55, his monthly ex-penses would be `3.02 lakh comfortably helping him retire peace-fully. Depending your risk-taking ability, you can either go for an ac-tively managed mid cap funds (i.e., for high risk takers) or go with a plain-vanilla index fund (ie for low risk takers).

BALANCED FUNDS

“Balanced funds also make good candidates for retirement planning since they offer good post-tax returns in the long term,” says Abhishek Gupta, a certified financial advisor with Mumbai-based Moat Wealth Advisors. This is because if the average equity component is kept above 65% (most of these balanced funds do it), there is no capital gains tax after a year of holding. He prefers HDFC Prudence Fund and Birla Sunlife 95 Fund amongst the balanced fund category.

ASSET ALLOCATION FUNDS

Asset allocation funds (where the fund managers move between equity and debt depending on the mar-ket conditions) are another option that can be considered. But not all financial planners prefer to go with these readymade tools. “Being fund of funds, the asset allocation funds are treated like debt funds and taxed accordingly,” points out Gupta. Instead, it makes sense to invest in the right combination of equity and debt funds and generate better post-tax returns than the fund of fund route.

MANAGE THE CORPUS

Building a retirement corpus is just one part of the game, managing the corpus post retirement is another ball game. The first part is to reduce the high-risk equity component slowly. “As you move closer to your retirement age, i.e., when you are 5-7 years away, shift the corpus gradually into hybrid products,” says Vishal Dhawan of Plan Ahead Wealth Advisors.

The next step is the use of systematic withdrawal plans (SWPs) offered by mutual funds to reduce your tax burden in the golden days. Please note that systematic withdrawal plan will ensure that the money in your hand is subject to capital gains tax whereas a pension income generated from other products is added to your income and taxed at the marginal rate.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/how-to-retire-happy-with-mutual-funds/articleshow/7490769.cms

Sebi proposes XBRL reporting system for mutual funds

Sebi has proposed a new reporting system for mutual funds based on XBRL technology -- a globally accepted standardised business reporting tool that enables easy dissection of bulk documents without delay.

The Securities and Exchange Board of India (Sebi), which regulates fund houses, has issued a draft structure of the proposed XBRL (eXtensible Business Reporting Language) system for all the regulatory filings to be made by mutual funds.

XBRL technology enables the computers read and divide the information provided in the filings under various heads and thus makes it easy to find any relevant details and to identify any irregularities.

Sebi has been working to put in place a unified regulatory filing system for all listed companies and market entities in a standardised format based on XBRL technology.

To start with, Sebi is likely to make the new business reporting mechanism mandatory for mutual funds and then expand this system to other segments in phases.

"SEBI intends to set up a comprehensive reporting, filing and dissemination system for filing of information reports in XBRL by listed entities, registered intermediaries and other entities," a senior official said.

The new system, called SUPER-D (Sebi Unified Platform for Electronic Reporting - Dissemination), is being developed in such a way that it is capable to manage simultaneous filing of 500 documents on normal days and have peak-period capacity to handle 15,000 simultaneous filings.

Besides disseminating the information on real-time basis to investors and others, the XBRL technology-based new system will also help Sebi itself as also other regulatory and investigative agencies in monitoring any irregularities in the affairs of companies and market intermediaries.

In addition to mandatory regulatory filings, including financial statements, the entities would have to use the new XBRL-based platform for all their reporting purposes to the regulator, the official added.

The system would also help in analysing the data for research and regulatory purposes and would have provision for automated report generation for regulatory purposes.

Once the system is put in place, all listed companies, as also market entities like foreign and domestic institutions and brokerages would need to make all their regulatory filings, including financial reporting and other disclosures, to the new unified platform in a common standardised format.

Currently, BSE and NSE have a XBRL-based financial reporting platform for listed companies for all their filings and the system helps the investors get real-time access.

Source: http://economictimes.indiatimes.com/markets/regulation/sebi-proposes-xbrl-reporting-system-for-mutual-funds/articleshow/7501969.cms

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Aggrasive Portfolio

  • Principal Emerging Bluechip fund (Stock picker Fund) 11%
  • Reliance Growth Fund (Stock Picker Fund) 11%
  • IDFC Premier Equity Fund (Stock picker Fund) (STP) 11%
  • HDFC Equity Fund (Mid cap Fund) 11%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 10%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund) 8%
  • Fidelity Special Situation Fund (Stock picker Fund) 8%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Moderate Portfolio

  • HDFC TOP 200 Fund (Large Cap Fund) 11%
  • Principal Large Cap Fund (Largecap Equity Fund) 10%
  • Reliance Vision Fund (Large Cap Fund) 10%
  • IDFC Imperial Equity Fund (Large Cap Fund) 10%
  • Reliance Regular Saving Fund (Stock Picker Fund) 10%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 9%
  • HDFC Prudence Fund (Balance Fund) 9%
  • ICICI Prudential Dynamic Plan (Dynamic Fund) 9%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Conservative Portfolio

  • ICICI Prudential Index Fund (Index Fund) 16%
  • HDFC Prudence Fund (Balance Fund) 16%
  • Reliance Regular Savings Fund - Balanced Option (Balance Fund) 16%
  • Principal Monthly Income Plan (MIP Fund) 16%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Principal Large Cap Fund (Largecap Equity Fund) 8%
  • JM Arbitrage Advantage Fund (Arbitrage Fund) 16%
  • IDFC Savings Advantage Fund (Liquid Fund) 14%

Best SIP Fund For 10 Years

  • IDFC Premier Equity Fund (Stock Picker Fund)
  • Principal Emerging Bluechip Fund (Stock Picker Fund)
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund)
  • JM Emerging Leader Fund (Multicap Fund)
  • Reliance Regular Saving Scheme (Equity Stock Picker)
  • Biral Mid cap Fund (Mid cap Fund)
  • Fidility Special Situation Fund (Stock Picker)
  • DSP Gold Fund (Equity oriented Gold Sector Fund)