Hello Sir I am 46 years age working in central govt my current salary is 88k in hand with nps corpus of 30 lacs .i have wasted about 15 years of job period in which my only investment was lic of amount 8 lacs which will mature on 2027. I have married lately in my 40s and now i have 3 years old son.i have tried to become disciplined now and in these 2020 to till date purchased gold ornaments of Rs 25 lacs. Sir i have a question whether i should go for UPS or stay in NPS and i have no other investments. I live in my ancestral house with my family. Please suggest.

Ans: It's impressive to see your proactive approach to financial planning at such a young age. With a healthy income and diverse investments, you're laying a strong foundation for your future. Your current SIPs reflect a balanced approach, diversifying across various market segments.

Regarding NPS, it's understandable that the lock-in period may not align with your comfort level. While NPS offers tax benefits and retirement planning advantages, it's essential to choose investment avenues that resonate with your financial goals and preferences.

Considering your financial situation and goals, a Certified Financial Planner can help streamline your investments and align them more closely with your aspirations. They can guide you on optimizing your portfolio, considering factors like risk tolerance, time horizon, and liquidity needs.

Remember, financial planning is a dynamic process. As you progress in your career and life, your goals and priorities may evolve. Regular reviews and adjustments to your investment strategy can help you stay on track. Keep up the good work, and best wishes for your financial journey ahead!

Ans: I see you have a well-structured financial situation. Let’s go through your details and provide a comprehensive plan for your financial goals and needs. You are 38 years old, a government employee in Jammu, with a net income of Rs 1,40,000 per month. You have two children, aged 9 and 5, and no bank loans. You and your spouse contribute to the NPS and have LIC policies, SIPs in mutual funds, term insurance, and a health policy. You are also planning for a housing loan. Let’s break this down and see if there are any improvements or adjustments needed.

Current Financial Overview
Income and Expenses
Net Income: Rs 1,40,000 per month
Expenses: Not explicitly stated, but assume moderate living costs due to small-town lifestyle.
Investments and Savings
NPS Contributions: Rs 17,000 per month (self) + Rs 14,000 per month (spouse)
Accumulated NPS: Rs 17 lakhs (self) + Rs 14 lakhs (spouse)
LIC Jeevan Labh Policies: Rs 38,000 per annum and Rs 32,000 per annum
Atal Pension Yojana (APY): Rs 5,000 each per month for both you and your spouse
SIPs in Mutual Funds: Rs 10,000 per month
Term Insurance: Rs 1 crore
Health Insurance: Rs 10 lakh family floater
Stock Investments: Rs 1,50,000 one-time + Rs 10,000 per month
Children’s Education Planning
You have started SIPs in three mutual funds aimed at long-term growth for your children’s education. This is a good strategy. Here are some tips:

Increase SIP Amount: As your income grows, consider increasing the SIP amount to ensure you are on track to meet the rising costs of education.
Review Fund Performance: Periodically review the performance of your funds. Ensure they align with your long-term goals.
Retirement Planning
You and your spouse are contributing to the NPS and APY, which will provide a solid retirement corpus.

NPS Contributions: Your contributions to NPS are substantial and will continue to grow with your DA and increments. Ensure you review your NPS portfolio and consider increasing the equity allocation for higher growth potential, if not already done.
APY: The APY contributions are a good addition to your retirement plan, providing a fixed pension post-60.
Insurance Coverage
Term Insurance: Your term insurance of Rs 1 crore is adequate for now. Ensure it covers your family’s future needs, considering inflation and rising costs.
Health Insurance: The Rs 10 lakh family floater health policy is good. Consider increasing the coverage as healthcare costs are rising rapidly.
LIC Policies
Your LIC Jeevan Labh policies are traditional plans with a mix of insurance and investment. While these provide guaranteed returns, the returns are relatively low compared to other investment options.

Continue with LIC: Since you have already paid premiums for several years, it might be wise to continue to avoid loss of benefits. However, assess if the returns meet your long-term goals.
Investment in Stocks
You have invested Rs 1,50,000 in stocks and are investing Rs 10,000 per month.

Diversify Portfolio: Ensure your stock portfolio is diversified across sectors to minimize risks.
Research and Monitor: Keep researching and monitoring your investments. Consider consulting a certified financial planner for stock investment advice if needed.
Housing Loan Planning
You plan to take a housing loan at age 40 for investment and tax rebate purposes.

Affordability: Ensure the EMI is affordable and doesn’t strain your finances.
Tax Benefits: A housing loan will provide tax benefits under Section 80C and 24(b). Calculate the benefits to see how it impacts your overall tax liability.
Property Selection: Choose a property in a location with good appreciation potential to maximize investment returns.
Emergency Fund
An emergency fund is crucial for financial security.

Fund Size: Ensure you have an emergency fund covering at least 6-12 months of your expenses. Given your income and responsibilities, a larger emergency fund is advisable.
Liquid Assets: Keep the emergency fund in liquid assets like a high-interest savings account or a liquid mutual fund for easy access.
Final Insights
You have a strong financial foundation with diversified investments and savings plans. Here are some additional steps you can take to optimize your financial health:

Regular Reviews: Conduct regular reviews of your financial plan. Adjust your investments and insurance coverage as needed based on changes in your financial situation and goals.
Financial Education: Keep educating yourself about new investment opportunities and financial strategies. Stay updated with market trends and regulatory changes.
Professional Advice: Consider consulting a certified financial planner for personalized advice and to ensure your financial plan is comprehensive and aligned with your goals.
With disciplined savings, strategic investments, and adequate insurance, you can achieve financial security and meet your long-term goals. Keep monitoring and adjusting your plan to stay on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Dear Vivek,
Thank you for your query regarding the recent pension scheme announcement. Let’s understand the key differences between the National Pension System (NPS) and the newly introduced Universal Pension Scheme (UPS) and find out which might be more beneficial for you.
National Pension System (NPS) NPS is a government-backed retirement savings scheme where you contribute regularly during your working years, and the funds are invested in a mix of equity, corporate debt, and government bonds. Upon retirement, you receive a portion of the accumulated corpus as a lump sum, and the rest is used to purchase an annuity that provides a regular pension. Let’s see what are Tax Benefits Contributions to NPS are tax-deductible up to Rs 1.5 lakh under Section 80C and an additional Rs 50,000 under Section 80CCD(1B), making it attractive for tax-saving purposes. The returns on NPS depend on market performance, as it invests in equity and debt instruments. Historically, the average return has been between 8-10%, making it a relatively high-return pension option. If you see 2023 the returns are between 16 to 20%. There is Flexibility to choose your own asset allocation (equity vs. debt) or opt for auto-allocation based on your age and risk profile. For Withdrawals At the age of 60, you can withdraw 60% of the corpus tax-free, while 40% is used to purchase an annuity, which provides a regular pension. For premature exit is only possible after 5 Years after registration. you can withdraw entire amount if corpus is below 2.5 Lakh. If corpus is beyond 2.5 lakh then you can only withdraw 20% and balance 80 % to be invested to buy annuity.
In case of Universal Pension Scheme (UPS) it is a recently introduced pension scheme aimed at providing retirement benefits to all citizens, including those in informal sectors who may not have access to other retirement schemes. It is designed to ensure that every citizen has a basic income after retirement. For Contribution: UPS is likely to have lower contribution requirements compared to NPS, making it more accessible to those with lower incomes or irregular earnings. The scheme promises universal coverage, meaning it is open to all citizens, regardless of their employment status. UPS may offer fixed or modest returns, more similar to a traditional pension plan, and less focused on market-linked investments like NPS. The scheme is likely to be simpler to manage, with fewer choices regarding asset allocation and investment decisions. Under the UPS, the assured pension will be the average basic salary + DA drawn in the previous 12 months before superannuation. This would mean that government employees, at retirement, will get 50% of the average of the last 12 months' salary + DA.
Which One Is More Beneficial?
If You’re Seeking Higher Returns and Flexibility then NPS would be a better option as it allows for market-linked returns (higher than most traditional pension schemes) and gives you control over your investment choices. It’s ideal for those who want to accumulate a larger retirement corpus.
If You Want Simplicity and Universal Access then UPS could be a good choice for individuals looking for an easy-to-understand, universally available pension scheme with a stable income. It is designed to cater to a broader section of the population, especially those in informal jobs or without regular retirement savings.
For Tax Benefits: NPS offers significant tax benefits under Section 80C and 80CCD, which may make it more attractive if you’re in a higher tax bracket.
For Lower-Income Individuals: UPS may be more beneficial due to its accessibility and potentially lower contribution requirements.
It’s important to assess your long-term goals, income, and risk tolerance before making a decision. If you need further clarification or help choosing the best scheme for you, feel free to reach out.
Best regards,
Nitin Narkhede
Founder & MD, Prosperity Lifestyle Hub https://Nitinnarkhede.com
Free Webinar https://bit.ly/PLH-Webinar

Ans: Investing for your children’s future is a commendable goal. With the government introducing the Universal Pension Scheme (UPS) alongside the National Pension System (NPS), it’s natural to weigh your options. The goal here is to find an investment that will not only secure their future but also maximize returns.

In this context, considering mutual funds as a primary investment vehicle may be the most effective strategy. Mutual funds can offer greater flexibility, potential returns, and the ability to meet specific financial goals for your children, aged 23 and 18.

Understanding the NPS and UPS
National Pension System (NPS)
NPS is a well-known government-backed pension scheme. It offers a mix of equity, debt, and government securities. The returns from NPS are market-linked, meaning they depend on the performance of the underlying assets. NPS also comes with tax benefits under Section 80C and 80CCD(1B) of the Income Tax Act.

Pros of NPS:

Tax Benefits: Investment in NPS offers tax deductions.

Long-Term Growth: NPS allows for disciplined retirement savings.

Partial Withdrawal: NPS permits partial withdrawals for specific needs.

Government-Backed: Being a government-backed scheme, it’s secure.

Cons of NPS:

Lock-In Period: The investment is locked until retirement, with limited withdrawal options.

Lower Equity Exposure: The maximum equity exposure in NPS is capped at 75%.

Annuity Requirement: A significant portion of the maturity amount must be used to purchase an annuity, which offers lower returns.

Universal Pension Scheme (UPS)
The recently introduced UPS is designed to provide universal coverage, catering to a broader demographic. Like NPS, it’s market-linked but with potentially more conservative investment options.

Pros of UPS:

Broader Coverage: Aimed at providing pension coverage to all.

Government Support: Backed by government initiatives.

Cons of UPS:

Lower Returns: Likely to be more conservative, with lower equity exposure.

Limited Flexibility: Similar to NPS, with a long lock-in period.

Why Mutual Funds Stand Out
Flexibility in Investment
Mutual funds offer a range of options, from equity funds to debt funds, catering to various risk appetites. For your children, considering their age and future financial needs, mutual funds provide the flexibility to adjust the investment strategy as they grow older.

Advantages:

Customizable Portfolios: You can choose funds that align with your children’s risk profile.

Liquidity: Mutual funds are more liquid, allowing easy access to funds when needed.

Diversification: Mutual funds offer diversification across different asset classes.

Higher Potential Returns
Compared to NPS and UPS, mutual funds, especially equity funds, have the potential to deliver higher returns. Over a long-term horizon, equity mutual funds can outperform other investment options due to their exposure to the stock market.

Equity Mutual Funds:

Growth-Oriented: Ideal for long-term goals like funding education or purchasing a home.

Variety: Includes large-cap, mid-cap, and small-cap funds, each with its growth potential.

Debt Mutual Funds:

Stability: Provides stability with lower risk, suitable for conservative investors.

Interest Rate Dynamics: Debt funds can take advantage of changing interest rates for returns.

Why Not NPS or UPS?
Lock-In Period Constraints
Both NPS and UPS come with significant lock-in periods, restricting access to funds until retirement age. This could be a drawback if your children require funds for education, starting a business, or other life events before they reach retirement age.

Impact on Liquidity:

NPS: Limited partial withdrawal options only for specific reasons.

UPS: Likely to follow similar restrictions as NPS.

Annuity Requirement
A significant downside of NPS, and likely UPS, is the annuity purchase requirement. Upon maturity, a large portion of the corpus must be used to buy an annuity, which generally offers lower returns. This reduces the flexibility to use the accumulated wealth as per the individual’s needs.

Annuity Constraints:

Lower Returns: Annuities typically provide lower returns compared to mutual funds.

Limited Usage: The annuity locks in the amount, providing a fixed income, which may not be sufficient to meet inflation-adjusted needs.

Disadvantages of Index Funds
While index funds are popular for their low costs, they may not be the best option for achieving higher returns. Index funds merely replicate the market index, offering no potential to outperform the market.

Key Points:

No Outperformance: Index funds only match market returns.

Lack of Active Management: Index funds lack the advantage of professional fund management, which can potentially add value through stock selection.

Benefits of Regular Funds Through a Certified Financial Planner (CFP)
Investing through regular funds via a Certified Financial Planner (CFP) offers several advantages. A CFP can help you navigate the complex investment landscape and select funds that align with your goals.

Advantages:

Professional Guidance: A CFP provides expert advice tailored to your needs.

Regular Monitoring: Regular funds managed by a CFP are closely monitored and adjusted based on market conditions.

Long-Term Strategy: A CFP can help devise a long-term strategy that adapts to life changes, ensuring your investment remains aligned with your children’s needs.

Mutual Funds for Children’s Education
Equity Mutual Funds for Long-Term Goals
For your 23-year-old child, currently in the 4th year of MBBS, equity mutual funds can be an excellent choice. With a longer investment horizon, equity funds can help build a substantial corpus by the time they start their career or pursue higher studies.

Considerations:

Aggressive Growth: Focus on funds with a strong track record in equity markets.

Diversified Portfolio: Invest in a mix of large-cap, mid-cap, and small-cap funds.

Balanced Mutual Funds for a Moderate Approach
For your 18-year-old child, balanced mutual funds can be a safer yet growth-oriented option. These funds invest in a mix of equity and debt, providing stability with the potential for growth.

Advantages:

Reduced Risk: Balanced funds lower the risk by including debt securities.

Steady Growth: Provides a steady growth potential suitable for education funding.

Evaluating Risk Tolerance
Understanding your children’s risk tolerance is crucial in deciding the right investment strategy.

For the 23-Year-Old:

Higher Risk Appetite: At this age, they can afford to take more risks with a greater focus on equity.

Long-Term Horizon: The longer investment horizon allows for recovery from market downturns.

For the 18-Year-Old:

Moderate Risk Appetite: A balanced approach with both equity and debt is advisable.

Shorter Horizon: As they approach higher education, a mix of stability and growth is ideal.

Final Insights
Investing in mutual funds offers flexibility, potential for higher returns, and customization based on your children’s needs. While NPS and UPS have their benefits, they come with significant limitations such as lock-in periods, lower equity exposure, and annuity requirements.

For your children, mutual funds provide the best opportunity to maximize returns, meet future financial needs, and adapt to changing circumstances.

By working with a Certified Financial Planner, you can ensure that your investments are managed professionally, with regular monitoring and adjustments, helping you stay on track towards your children’s financial goals.

Finally, prioritize a diversified approach, balancing risk and reward, to secure a bright financial future for your children.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hello;

The main plus point of UPS is guaranteed benefit i.e. 50% of last drawn salary as pension.

And this pension has Dearness allowance component so your retirement income is pegged to inflation.

However you will need to carefully assess the pro's and con's of each system and take a call. My advice will be for UPS.

Best wishes;