Source: The Economic Times
A variety of ingredients come together
to make a complete meal. In personal finance too, it's about getting the mix
right. ET lists 7 combinations for you to consider.
1. Tax planning ELSS + PPF + NPS
When choosing products under Section
80C, opt for a mix that will not only help you preserve capital and save tax,
but also make your wealth grow. ELSS gives the benefit of superior wealth
accretion coupled with tax saving, with a low 3 year lock-in period. PPF offers
guaranteed interest income, with a 15 year lock-in. Based on your risk appetite and time horizon, decide
whether to put more in ELSS or PPF. This can be supplemented with Rs
50,000 in NPS under Sec 80CCD (2), which is entirely tax deductible. This
scheme is a good vehicle for building a retirement kitty. Total tax saving: Up
to Rs 61,800 for a person in highest tax bracket
2. Post-retirement income SCSS + Bank FD
For those about to retire without the
benefit of NPS or government pension, there are several options for generating
income. The Senior Citizen Savings Scheme is the ideal fit with an assured
return of 8.6% (currently) for 5 years, coupled with a tax break of up to Rs
1.5 lakh under Section 80C. You can invest a maximum of Rs 15 lakh a year in
this scheme. Any surplus should be parked in a 5-year tax-saving fixed deposit
offered by banks at interest rates similar to traditional bank FDs. These investments are also eligible
for tax deduction under 80C. However, interest earned on both instruments is
not tax exempt. The two instruments combined offer retirees a steady
stream of income. The interest on SCSS investments are paid on a quarterly
basis, i.e. on the first working days of January, April, July and October.
3. Capital preservation Tax-free bonds + Arbitrage funds
Safety of capital is very important yet
safe instruments like FDs are not tax efficient. Investors can instead put
their money in a mix of tax-free bonds and arbitrage funds. The former are
fixed income instruments issued by government-backed companies that guarantee
safety of capital. The interest rate of 7.3-7.6% is completely tax-free, making
them more tax efficient than FDs. While these come with tenure of 10-20 years, investors can sell them on
exchanges before maturity. For enhanced liquidity, consider arbitrage
funds. They yield returns comparable to debt instruments and are very safe.
They are tax efficient as they are treated as equity funds for taxation. Tax-free
bonds issued in 2013-14 have yielded returns of around 20%, apart from a near
double-digit rate of interest for the investor.
4. Wealth accumulation Diversified equity funds + Dynamic
asset allocation/ Balanced funds
To
build a corpus for long-term goals like buying a house, building a retirement kitty
or funding a child's education, investors must choose products that provide enhanced
earning power. This can come in the form of
diversified equity funds. Those with a steady cash flow should ideally set up
SIPs in 3-4 funds with a proven track record. Additionally, investors can
invest in a balanced fund or dynamic asset allocation fund to ride out the
volatility inherent in equity markets. These will automatically shift the
investor's money between equity and debt instruments depending on market
conditions and introduce stability to the portfolio. A Rs 10,000 monthly SIP in
a multi-cap diversified equity fund starting January 2006 would have generated
a corpus of Rs 23.5 lakh today.
5. Emergency fund FD sweep-in + Liquid fund
Put in place an emergency fund (ideally
amounting to 6 months' expenses) to act as a buffer against unforeseen events.
This fund is best created with a combination of a sweep-in account and a liquid
or ultra-short term debt fund. Put 3 months' worth of expense in a fixed
deposit with a sweep-in facility. Under the sweep-in, any amount beyond a
threshold is automatically moved into a fixed deposit, earning a higher rate of
interest. In case of an emergency, the deficit in savings can be met by pulling
from the FD. The remaining funds can be put in a liquid fund that not only
offers high liquidity but also yields better return on idle savings. Some funds like Reliance Money
Manager Fund provide an ATM card which can be used to withdraw money instantly
from the fund any time.
6. Insurance Pure term plan + Family floater health plan +
Accident insurance + Critical illness protection
For complete protection of yourself and
your family, it is necessary to look beyond life insurance. A pure term plan
will provide financial cover to your family in the event of your death. But
this would be of no help if the policyholder meets with an accident and loses a
limb. Supplement the term plan with an accident disability cover. To prevent
any medical exigency wiping out your savings, opt for a family floater health
plan that can reimburse such expenses. Also consider a critical illness rider
to go with a term or health policy to protect against costs associated with
diseases like cancer. A life insurance policy should ideally provide a cover of
at least 8-10 times your annual income; health cover is best enhanced through a
top-up plan to reduce costs.
7. Payments Credit cards + Internet banking + e-wallets
Paying with cash is so last decade.
Internet banking now allows you to carry out most transactions from home. Pay
bills, transfer funds or create a fixed deposit at the click of a mouse. While
shopping online or in the mall, make the experience more rewarding by using
credit cards or e-wallets smartly. Credit cards allow you to enjoy
interest-free credit for up to 50 days provided you pay the card bills on time.
They also offer rewards on every purchase. E-wallets being prepaid accounts help
you buy merchandise and transact online without using your debit or credit card.
The discounts and cash-back offers on various products make them a rewarding
payments solution. e-wallets allow you to store Rs 10 to Rs 10,000 in your
online account at anytime.
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