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Celebrate India’s 75th Independence Day with your 75-Year Financial Plan

dateKnowledge Centre Team dateAugust 12, 2022 views211 Views
iSelect Guaranteed Future | Best Savings Plan Online

As Independent India turns 75, there’s a lot to learn from this tumultuous journey. From a fledgeling democracy to the deep economic crisis and now a fast-growing world economic power. From the 5-year Planning Commissions to Niti Ayog, what has led to our economic rise, is an important lesson in personal finance as well.

The economic journey of the country has a direct correlation with your financial journey. In a country dominated by government-backed fixed income investments, a booming economy is always in demand. But would it be possible with just a five-year plan?

Just like the Planning Commission of India, the majority of families also tend to run these five-year plans. However, unlike the country, which can borrow funds for investment and economic expansion, families cannot hope to borrow money to improve their financial health.

If your five-year plan falls short of targets, you have five years less to catch up. Thus, as a family or individual, you need a plan for a lifetime, i.e., 75 years at least. The average life expectancy in India stands close to 69. If you are 30, by the time you retire it will grow to 75 or 80.

How to Draft a Long-term Financial Plan?

Writing your 75 year financial plan is simple. You should start with the important life goals you must achieve and will need money for and proceed from there. Take the following steps to write down your goals:

1. Identify the Goals

You have many large financial goals in life. Some of the common goals include – retirement, a child’s marriage, a child’s higher education, home purchase, car upgrade, etc.

You can include smaller life goals like a family vacation, home renovation, and interior work as well. But their priority will be lower than the bigger goals.

2. Assign a Number to Each Goal

For a life goal to become a part of your financial plan it must need funds to complete. For example, retirement will need a large corpus, child’s marriage and education will need a large sum of money for the expense.

In this step, you need to figure out the money you will need for each of these goals. For retirement, you may not need to estimate your retirement corpus need. Instead, try to figure out the monthly income you will need after you retire.

3. How much Time do you Have?

Once you have the amounts for all the goals, you need to understand how long you have before the liability arises. For example, if your child is five years old right now you have about 12 – 15 years before you need to fund her higher education.

Similarly, your normal retirement will be at about 60 years of age. If you are 35, you have about 25 years in your hands to build the corpus you will need.

Once you have these numbers ready for all the big life goals, it’s time to move to the next step.

What Long-Term Investments should you Make?

Most of the big life goals are very important for you and your family, but they also fall somewhat later in your life. So, you can afford to invest in long-term investments to meet these goals. Here are some of the best long-term investments you should consider:

1. Public Provident Fund (PPF)

  • Tax deductible investments of up to Rs 1.5 lakhs a year
  • You can operate only one PPF account
  • The rate of return is guaranteed, however, changes as per Finance Ministry announcements
  • The minimum holding period is 15 years
  • Courts cannot attach the account in case of loan defaults

2. Debt Mutual Funds

  • Invest in corporate or gilt funds based on your risk appetite
  • Returns are less volatile than equity funds
  • You can invest for any term, but it is recommended that you invest for at least 3 years.
  • No limit on maximum investment
  • Diversify between different funds to spread your investment risk

3. Saving Plans

  • Provided by life insurance companies
  • Maturity value is guaranteed
  • You will also have a life cover
  • You can have guaranteed bonuses based on your investment amounts and term of investment
  • With plans like iSelect Guaranteed Future and Guaranteed Savings Plan from Canara HSBC Life Insurance, you can also opt to secure the maturity value against your early demise
  • You can receive funds from the plans as staggered annual payments at important milestones

4. National Pension System

  • Made for long-term retirement savings goals
  • Normal withdrawals allowed only after 60
  • Invest in a portfolio as per your risk appetite, maximum exposure to equity is limited to 50%
  • Investments up to Rs 2 lakh per year are eligible for deduction from taxable income
  • Your employer can also contribute to your NPS account

5. Unit Linked Insurance Plans

  • Invest in diversified portfolios of equity and debt funds
  • The minimum investment tenure is five years, but longer tenures offer additional benefits
  • Plans like Invest 4G from Canara HSBC Life Insurance allow you to stay invested up to 99 years of age
  • Partial withdrawals after five years of investments are tax-free
  • Bonus additions for long-term and disciplined investors
  • You can stay invested in the same plan for a lifetime, build a corpus and draw a tax-free pension from it after 60
  • Although there is no maximum limit on annual investment, you should invest up to a total of Rs 2.5 lakh per year in all ULIPs. This will maintain the tax-free status of your ULIPs.

6. Hybrid and Equity Mutual Funds

  • Hybrid and equity mutual funds invest in a mix of equity and debt securities
  • No maximum limit of investment
  • No minimum or maximum tenure of investment. However, it is recommended that you invest for at least 12 months in these plans
Safe Investment Plans Aggressive Investment Plans
Public Provident Fund (15 years + 5 years) National Pension System (till the age of 60)
Debt Mutual Funds (3 years+) Unit Linked Insurance Plans (5 years +)
Guaranteed Saving Plans (10 years+) Hybrid and Equity Mutual Funds (1 year +)

The 75-Year Plan Summary

Your 75-year lifetime financial plan should act as a guiding map for your investments. You can have a summary of the plan in the following format:

Goal Corpus Needed Time To Goal Investment Plan Investment Amount
Retirement Rs 50,000 p.m. 30 years NPS, ULIP 10,000 p.m., 5000 p.m.
Child’s Marriage Rs 15 lakhs 20 years ULIP, PPF, Mutual Funds 2000 p.m., 1000 p.m., 1000 p.m.
Child’s Higher Education Rs 30 lakhs 15 years ULIP, Guaranteed Plans, Mutual Funds 5000 p.m., 4000 p.m., 1000 p.m.
Home Purchase Rs 20 lakhs 10 years ULIP, Mutual Funds 10,000 p.m., 5000 p.m.

You can continue to add more goals and investments to the list.

A contingency plan is another major milestone in your financial plan. This is the first step in your plan execution. Here are the things you will need for a complete contingency plan:

  - Emergency fund pool equal to at least 3 months of your income
  - Term life cover of 10 times your annual income
  - Health/medical cover of 3-5 lakhs per family member
  - Add accidental, disability and critical covers to your term and health covers for maximum protection

Once your contingency needs are in place, you can start investing in your long-term financial goals.

Five-year plans have a record of failing their masters. Indian five-year economic plans failed to achieve targeted economic growth more times than they succeeded. Even in life, you need to think long-term to succeed and enjoy your life to the full.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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