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Planning to Invest in NPS? Here’s One Tip to Build a Larger Retirement Corpus

Planning to invest in NPS

Introduction

We have all heard the saying, “Don’t save what is left after spending; spend what is left after saving,” by Warren Buffet. In today’s world, planning for retirement is more accessible than ever with the right strategy. One effective option is investing in the National Pension Scheme (NPS), which can help secure your retirement through smart investment decisions.

What is NPS?

The National Pension Scheme (NPS) is a social initiative by the Central Government to secure the retirement of Indian citizens. It is available to employees in the public, private, and even unorganized sectors, except for those in the armed forces. The scheme encourages regular contributions to a pension account during employment, with a portion of the corpus available at retirement and the remaining amount disbursed as a monthly pension.

Auto NPS vs. Active NPS

NPS offers two investment choices: Auto Choice and Active Choice.

Auto NPS (Auto Choice)

Auto Choice invests your money based on your age. This is ideal if you are unsure about choosing the right investment mix. It has three categories:

  • Aggressive Life Cycle Fund (LC75): Up to 75% in equities until age 35, then gradually reduced your equity allocation by 4% every year and get reinvested in Corporate Debt and Government Securities.
  • Moderate Life Cycle Fund (LC50): Up to 50% in equities until age 35, then gradually reduced your equity allocation by 2% every year and get reinvested in Corporate Debt and Government Securities.
  • Conservative Life Cycle Fund (LC25): Up to 25% in equities until age 35, then gradually reduced your equity allocation by 1% every year and get reinvested in Corporate Debt and Government Securities.

Active NPS (Active Choice)

Active Choice allows you to choose how your money is invested across three asset classes:

  • Equity (E): Investments in stocks, higher risk, and potentially higher returns.
  • Corporate Debt (C): Investments in corporate bonds, moderate risk, and returns.
  • Government Bonds (G): Investments in government securities, low risk, and stable but lower returns.

You can allocate up to 75% in equities, giving you more control over your investments.

Comparing Returns

Returns in Auto Choice depend on the lifecycle fund selected, with aggressive funds potentially offering higher returns for younger investors. Active Choice returns vary based on your chosen asset allocation.

Ease of Investment

Auto Choice is easier, requiring less decision-making as investments are managed automatically. It suits those preferring a hands-off approach. Active Choice offers more control but requires knowledge and regular monitoring. It’s ideal for those comfortable managing their investments.

Things to keep in mind

In conclusion, if you prefer simplicity and peace of mind, Auto Choice is ideal. If you enjoy being involved in your investment decisions and are confident in your abilities, Active Choice may be more suitable. By choosing the right NPS option, you can build a larger retirement corpus and ensure a financially secure future.

Note: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. The past performance of the schemes is neither an indicator nor a guarantee of future performance.

Embark on a journey to financial success in 2024-25 with Dhanvantree: setting goals, empowering through knowledge, fostering dialogue, and celebrating milestones together.

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Top-Up SIPs: Grow Your Wealth Automatically as Your Salary Increases

Grow your wealth with Top-Up SIP

Introduction

Starting to invest can seem troublesome, especially if you’ve just started working and don’t have much experience with money. There is nothing to worry about, as every expert was a beginner at some stage of their life. We can use the wisdom of those experts and start from their advice. The majority of those investors have placed significant weight on mutual fund investing. But for some people, even mutual funds can seem complicated. However, there’s a really easy way to start investing with just as little as ₹500 a month, called a Systematic Investment Plan (SIP) in mutual funds. In this article, we’ll look at how you can get started and why it’s a good idea.

What’s a SIP?

A SIP, or Systematic Investment Plan, is a method of investing designed specifically to build consistency and discipline among investors. In this plan, the investor puts a fixed amount of money regularly into mutual funds. Think of it like a savings plan where you set aside a small amount every month. Instead of trying to figure out the perfect time to invest, which can be really hard and stressful, a SIP lets you invest the same amount at regular intervals. This way, your money gets spread out over time, which can help balance out the ups and downs of the market.

Why Start with ₹500?

Beginning with ₹500 a month is great for a few important reasons:

  • Affordable: ₹500 is a small, manageable amount for most people, especially for young professionals who are just starting their careers, and for housewives who can only manage to save this much for themselves. It won’t require you to make big changes to your spending habits.
  • Builds a Habit: Investing a small amount regularly helps you build the habit of saving and investing, which is crucial for long-term financial success.
  • Compounding: Even small amounts of money can grow significantly over time through the principle of compounding. Compounding means your investment earns returns, and then those returns also start earning returns.

Understanding Compounding

Even without a nomination file the existing demat account holders and mutual fund folios can still continue to enjoy still enjoy dividends, interest payouts, redemption proceeds, and access to registrar services. The continuation of these benefits and services will not be taken away on the basis of no nomination.

Making Your SIP Grow: The Top-Up Option

As you move forward in your career, you’ll likely receive salary hikes or promotions. When your income increases, you can also increase the amount you invest each month. This is where the Top-Up SIP comes in handy.

How Does a Top-Up SIP Work?

A Top-Up SIP allows you to increase the amount you invest in your SIP by a fixed percentage or amount every year. Let’s look at an example to understand how it works.

Example of Top-Up SIP:

Imagine you start with a SIP of ₹500 per month. You decide to increase your SIP by 10% every year.

  • Year 1: You invest ₹500 per month. Over the year, you invest a total of ₹6,000 (₹500 x 12 months).
  • Year 2: You increase your SIP by 10%. So, you now invest ₹550 per month. Over the year, you invest a total of ₹6,600 (₹550 x 12 months).
  • Year 3: You increase your SIP by another 10%. So, you now invest ₹605 per month (10% increase on ₹550). Over the year, you invest a total of ₹7,260 (₹605 x 12 months).

Here’s a quick table to provide a better idea of how your SIP would grow each year with a 10% top-up:

Year Monthly SIP Amount Total Invested in Year
1
₹500
₹6,000
2
₹550
₹6,600
3
₹605
₹7,260
4
₹665.5
₹7,986
5
₹732.05
₹8,784.6

How Does This Benefit You?

By using the Top-Up SIP, your investment amount grows gradually. This is great because:

  • Matches Salary Increases: Your investments grow in line with your salary increases, so you’re investing more as you earn more.
  • Boosts Savings: Even small increases can add up to significant savings over time.
  • Automated Growth: You don’t have to think about it every year. Once set, the increase happens automatically.

Starting New SIPs with Salary Hikes

In addition to using the Top-Up SIP option, another strategy is to start a new SIP every time you get a raise or bonus. For example, if you get a raise of ₹5,000 per month, you could start a new SIP with a portion of that amount, such as ₹1,000. This strategy ensures that your overall investment keeps increasing as your salary grows.

Steps to Start Your SIP

  1. Pick a Mutual Fund: Start by choosing a mutual fund that matches your financial goals and risk tolerance. Look at factors like past performance, the reputation of the fund manager, and fees.
  2. Set Up Your SIP: Use an investment platform or go directly to the mutual fund’s website to set up your SIP. You’ll need to provide details like the amount you want to invest, the frequency (usually monthly), and the start date.
  3. Add the Top-Up Option: If your mutual fund offers it, select the Top-Up SIP option and decide on the percentage increase you want each year.
  4. Review Regularly: Make it a habit to check in on your investments periodically. This doesn’t mean you need to make changes all the time, but it’s good to know how your investments are doing and make adjustments if your goals or financial situation changes.

Conclusion

Starting to invest with just ₹500 a month is a smart and easy way to begin building your financial future. Using a SIP allows you to invest regularly without worrying about market timing. The Top-Up SIP and starting new SIPs with salary hikes are excellent strategies to ensure your investments grow as your income increases. The key is to start early, be consistent, and let the power of compounding work its magic over time.

By following these steps, you’ll be well on your way to achieving your financial goals and securing a prosperous future. Remember, investing is a long-term journey, and starting small today can lead to significant growth in the future.

This guide is meant to help you get started with investing. For personalized advice, it’s always a good idea to talk to a financial advisor.

Note: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. The past performance of the schemes is neither an indicator nor a guarantee of future performance.

Embark on a journey to financial success in 2024-25 with Dhanvantree: setting goals, empowering through knowledge, fostering dialogue, and celebrating milestones together.

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SEBI Confirms: No Freeze on Accounts Lacking Nominees

The hero image of 'No Freezing of mutual funds folios and demat account for not adding a nominee' blog

Introduction

On June 10th, the Securities and Exchange Board of India (SEBI) clarified that it will not freeze existing mutual fund folios and demat accounts for investors who have not added a nominee. According to SEBI’s circular, new investors from June 30th onwards must have a nomination for mutual fund folios and demat accounts. SEBI has instructed Asset Management Companies (AMCs) to promote nominations for existing mutual fund folio holders.

Key Points from SEBI’s Circular

  1. No Freezing of Accounts Without a Nominee: If you already have a demat account or mutual fund before June 30, 2024, you don’t have to worry about your account being frozen if you haven’t added a nominee. You can still continue using your account just as before.
  2. Continued Benefits for Existing Accounts: Even if you don’t have a nominee, you can still enjoy all the benefits of your account. This includes receiving dividends, interest payouts, and being able to redeem your investments.
  3. Why Having a Nominee is Important: SEBI emphasizes the benefits of having a nominee, explaining that it makes it easier for your investments to be transferred to someone else in case something happens to you.

Now, that we know, what the circular contains. Let’s talk about it in a detail.

No freezing of mutual funds and demat account of existing account holders incase of no nominee.

The circular SEBI has provided clarification that the nomination is not mandatory for the existing demat account holders and mutual funds folios.

Existing account holders, are defined as the those have an existing account or mutual fund folios prior to June 30th. But any account holder or mutual fund folio post this date is mandated to have a nomination file.

Continuation of mutual fund and demat account services and benefits.

Even without a nomination file the existing demat account holders and mutual fund folios can still continue to enjoy still enjoy dividends, interest payouts, redemption proceeds, and access to registrar services. The continuation of these benefits and services will not be taken away on the basis of no nomination.

Importance of nomination in your profile.

In the circular SEBI highlights why nomination should be present in demat account holders and mutual fund folios. And, why it should be encouraged?

Having a nominee helps in easing the transfer process in case of death of demat account holder and mutual fund folio.

Understanding Mutual Fund Nomination

A mutual fund nomination is like assigning a person (or people) to inherit your mutual fund units if you pass away. You can name up to three nominees for each mutual fund. If you choose more than one nominee, you need to decide how to divide your investments among them. For example, you might decide that one nominee gets 60% and another gets 40%. You can also change your nominee anytime by filling out a form with your mutual fund company.

Why SEBI Encourages Nomination

SEBI encourages adding a nominee for several reasons:

  • Smooth Transition: It makes it easier to transfer ownership of your investments if you pass away.
  • Reduces Complexity: Without a nominee, your family might have to deal with complicated legal procedures to claim your investments.
  • Provides Peace of Mind: Knowing that your investments will be transferred smoothly to your loved ones can give you peace of mind.

Conclusion

SEBI’s new rules make it clear that you don’t have to worry about freezing your existing mutual fund or demat accounts if you don’t have a nominee. However, having a nominee is still a good idea because it makes it easier for your family to handle your investments if something happens to you. Whether you’re just starting to invest or have been doing it for years, consider adding a nominee to your accounts for smoother financial management.

Note: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. The past performance of the schemes is neither an indicator nor a guarantee of future performance.

Embark on a journey to financial success in 2024-25 with Dhanvantree: setting goals, empowering through knowledge, fostering dialogue, and celebrating milestones together.

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Where Should a Working Woman Invest Rs 10,000 Every Month?

regular investment mindset

Introduction

Investing regularly is a smart way to grow your money over time, and it’s especially important for working women who want to secure their financial future. If you’re thinking about where to invest Rs 10,000 each month, there are several factors to consider, such as how long you want to invest, your age, and what you want to achieve with your investments. This article will guide you on the best places to invest Rs 10,000 every month, explaining different options and strategies that might work for you.

What to Think About Before Investing

  1. Investment Horizon: This is the length of time you plan to keep your money invested. For short-term goals (a few months to a year), low-risk options like money market funds or short-term bond funds are best. For goals that are 3 to 5 years or more, you might choose multi-asset funds, large and mid-cap funds, or aggressive hybrid funds, which can give higher returns but come with more risk.
  2. Age: Your age affects how much risk you can take. Younger women in their 20s can usually take more risks and might choose small-cap funds that can give high returns. Women in their 30s might prefer balanced funds with moderate risk. Women in their 40s or 50s might go for large-cap or blue-chip funds, which are safer.
  3. Investment Goals: Knowing what you want to achieve helps you pick the right investment. Whether it’s saving for a house, your kids’ education, or retirement, aligning your investments with your goals helps you stay focused.

Investment Options for Rs 10,000 Monthly

1. Systematic Investment Plans (SIPs) in Mutual Funds:

Mutual funds offer many types of schemes to fit different risk levels and timeframes. SIPs let you invest a fixed amount regularly and help average out the cost over time.

  • Short-Term Goals: Consider money market funds or short-term bond funds.
  • Mid to Long-Term Goals: Multi-asset allocation funds, large and mid-cap funds, or aggressive hybrid funds are suitable. SIPs in these funds can start with as little as Rs. 500, and they offer the flexibility to diversify across different asset classes.

Advantages of SIPs:

  • Rupee Cost Averaging: Invests a fixed amount regularly, buying more units when prices are low and fewer when prices are high, averaging out the cost.
  • Disciplined Investing: Encourages regular saving and investment habits.
  • Tax Benefits: Investment in ELSS funds through SIPs qualifies for tax deductions under Section 80C.

2. Gold Bonds

Gold bonds offer a modern and efficient way to invest in gold, combining traditional value with modern financial instruments. They provide returns linked to the price of gold and sometimes pay additional interest.

  • Forms: Digital gold bonds or Gold ETFs.
  • Use Case: Suitable if you plan to buy physical gold or jewelry in the future, as they can sometimes be converted into physical gold.

Advantages of Gold Bonds:

  • Inflation Hedge: Gold often retains its value and beats inflation over the long term.
  • Liquidity: Easily tradable on exchanges or redeemable after a certain period.
  • No Storage Hassle: Unlike physical gold, no need for safekeeping or storage concerns.

3. Recurring Deposit (RD)

Recurring Deposits are suitable for those seeking a safe, low-risk investment option with fixed returns.

  • Investment Tenure: Ranges from 6 months to 10 years.
  • Interest Rates: Typically range between 3.5% and 8.5%, with senior citizens enjoying slightly higher rates.

Advantages of RD:

  • Flexibility: Choose the investment amount and tenure.
  • Safety: Low-risk with fixed returns, ideal for conservative investors.
  • High Liquidity: While premature withdrawal attracts penalties, RDs are generally liquid.

4. Public Provident Fund (PPF)

PPF is a government-backed savings scheme offering risk-free returns and tax benefits.

  • Tenure: Fixed at 15 years, with the option to extend in blocks of 5 years.
  • Interest Rate: Currently at 7.1% for FY 2022-23, compounded annually.

Advantages of PPF:

  • Tax Benefits: Investments qualify for tax deductions under Section 80C.
  • Risk-Free: Backed by the government, making it a safe option.
  • Long-Term Growth: Ideal for building a retirement corpus.

5. National Pension System (NPS)

NPS is a market-linked savings initiative designed for retirement planning.

  • Account Types: Tier-I (mandatory for tax benefits) and Tier-II (optional, more flexible).
  • Investment Options: Diverse portfolio including equities, government bonds, and corporate bonds.

Advantages of NPS:

  • Tax Benefits: Provides tax benefits under multiple sections of the Income Tax Act.
  • Retirement Focused: Aids in building a retirement corpus with professional fund management.
  • Low Cost: Comparatively lower management fees than other retirement savings schemes.

6. Mahila Samman Savings Certificate

A recent introduction aimed at female investors, this scheme offers a fixed annual interest rate of 7.5% with a two-year maturity.

Advantages of Mahila Samman Savings Certificate:

  • High Returns: Competitive interest rate compounded quarterly.
  • Targeted at Women: Exclusively for female investors, offering a focused savings instrument.

Key Tips for Working Women

  1. Start Early: The earlier you start, the more time your investments have to grow.
  2. Invest Regularly: Consistent investing, even in small amounts, accumulates significant wealth over time.
  3. Diversify: Spread your investments across different asset classes to reduce risk.
  4. Rebalance Regularly: Adjust your portfolio as your financial goals and risk tolerance change.

Importance of Investing for Women

  • Financial Security: Regular investing builds a substantial corpus for future needs and emergencies.
  • Support Family Goals: Investments help in achieving long-term goals such as home buying or children’s education.
  • Retirement Planning: Investing ensures a comfortable retirement by creating a steady income stream.
  • Independence: Empowers women to be financially independent and secure their own future.

Conclusion

Investing Rs 10,000 every month can greatly improve a working woman’s financial security and help meet her long-term goals. By understanding how long you plan to invest, how much risk you can handle, and what you want to achieve, you can choose the right investment options. Whether you go for mutual funds, gold bonds, recurring deposits, PPF, NPS, or Mahila Samman Savings Certificates, each offers unique benefits tailored to different financial needs and goals. Start investing today to build a brighter financial future!

Note: Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. The past performance of the schemes is neither an indicator nor a guarantee of future performance.

Embark on a journey to financial success in 2024-25 with Dhanvantree: setting goals, empowering through knowledge, fostering dialogue, and celebrating milestones together.

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