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Ramalingam Kalirajan  |6986 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 02, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Jan 24, 2024Hindi
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I'm retiring in july2024, I'll be getting about 2 cr PF amount and about 1Cr is there in NPS account. Do I have to deffer NPS to save tax and invest PF amount in fixed income schemes and equity for growth.

Ans: As you approach retirement, it's natural to reassess your financial strategy. Consider the tax benefits of deferring your NPS withdrawal while investing your PF amount wisely. A Certified Financial Planner can guide you in allocating your funds between fixed income and equity, balancing stability with growth potential. Reflect on your long-term goals and seek professional advice to ensure a secure and fulfilling retirement journey.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Financial Planner - Answered on Mar 26, 2024

Asked by Anonymous - Mar 24, 2024Hindi
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I'm retiring in September 2024. I'll be getting about 1 cr PF amount and about Rs 50 lakh in NPS account. Do I have to defer NPS to save tax and invest PF amount in fixed income schemes and equity for growth?
Ans: You don't necessarily need to defer NPS withdrawal to save tax on your retirement corpus. Here's a breakdown of the tax implications and a suggestion for managing your retirement corpus:

Tax treatment of NPS and PF withdrawals:

NPS: NPS offers tax benefits under Section 80CCD(1) for contributions and partial withdrawal at retirement is tax-free up to 40%. The remaining 60% is distributed as 20% tax-free and 40% taxable as per your income slab.

PF: The entire PF corpus (including interest) is tax-free at withdrawal.

Considering your situation:

Upon retirement, you'll receive Rs 1 crore from PF which is entirely tax-free.

Out of Rs 50 lakh in NPS, 40% (Rs 20 lakh) will be tax-free and the remaining 60% (Rs 30 lakh) will be partially taxable. Assuming you're in the highest tax bracket (30%), you might incur a tax of Rs 9 lakh on the taxable portion.

Deferring NPS vs Investing in Fixed Income/Equity:

Deferring NPS to save tax on the entire amount might not be the most optimal strategy. Here's why:

Access to funds: Deferring NPS restricts your access to a significant portion of your retirement corpus.

Tax-free income: The Rs 1 crore from PF is already a substantial tax-free amount that can cover your basic needs.

Possible strategy:

You can withdraw the entire NPS corpus and pay the tax on the taxable portion (around Rs 9 lakh).

Invest the remaining corpus (Rs 1 crore from PF + Rs 41 lakh from NPS - Rs 9 lakh tax) for growth. You can consider a mix of fixed income and equity investments based on your risk tolerance. For example, 60% in equity (higher risk, potentially higher returns)

40% in fixed income (lower risk, lower returns).

Consulting a financial advisor:

This is a simplified example, and it's recommended to consult a financial advisor for personalised advice considering your risk profile and financial goals. They can help you create a retirement plan that optimises your tax benefits and aligns with your investment needs.

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Ramalingam

Ramalingam Kalirajan  |6986 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 04, 2024

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I am a Grade-III state govt. servant covered under Tier-I NPS. The accumulated NPS amount of employee contribution and employer contribution is 14 lakh. I have also invested in Mutual Funds an amount of 10000 for the last 5 years. I am going to retire after 6 years. Are the investment of NPS and MF are sufficient for retirement fund.
Ans: Evaluating Your Current Retirement Portfolio
Your accumulated NPS amount of Rs. 14 lakh and consistent investment in mutual funds demonstrate disciplined financial planning. Let's assess if these investments will be sufficient for your retirement fund.

Understanding Your Retirement Goals
Retirement Corpus: To evaluate your retirement corpus, we need to understand your retirement goals. This includes your expected monthly expenses, lifestyle, and inflation.

Time Horizon: You have 6 years until retirement. This is a relatively short time frame for investment growth.

National Pension System (NPS)
Contribution and Growth: Your NPS has accumulated Rs. 14 lakh. NPS offers a mix of equity and debt investments, providing a balanced growth approach.

Tax Benefits: NPS contributions offer tax benefits, which is an added advantage. At retirement, you can withdraw up to 60% of the corpus tax-free, while 40% is mandatorily used for purchasing an annuity.

Mutual Fund Investments
Investment Pattern: Investing Rs. 10,000 monthly for the last 5 years shows a strong commitment. Mutual funds, especially equity funds, can offer higher returns over the long term.

Potential Growth: Assuming an average annual return of 12%, your mutual fund investments can grow significantly in the next 6 years. However, market volatility should be considered.

Assessing Sufficiency for Retirement
Projected Growth of NPS: Assuming an average annual return of 10%, your NPS corpus can grow considerably in the next 6 years. This growth will depend on the asset allocation within NPS.

Projected Growth of Mutual Funds: Your mutual fund investments will continue to grow. Consistent SIPs and market performance will influence the final corpus.

Expected Retirement Corpus:
Let's estimate the potential corpus at retirement:

NPS Corpus: Rs. 14 lakh growing at 10% annually.
Mutual Funds Corpus: Rs. 10,000 monthly SIP for 11 years growing at 12% annually.
Additional Considerations
Inflation: Consider inflation's impact on your retirement corpus. Inflation erodes the purchasing power of money over time.

Lifestyle and Expenses: Estimate your monthly expenses post-retirement. Include medical costs, travel, and other lifestyle choices.

Contingency Fund: Maintain a contingency fund for emergencies. This prevents dipping into retirement savings for unexpected expenses.

Recommendations for Enhancing Retirement Corpus
Increase SIP Amount: Gradually increase your SIP amount if possible. This leverages the power of compounding and accelerates growth.

Diversify Investments: Ensure your mutual fund portfolio is well-diversified across different sectors and market caps. This reduces risk and enhances returns.

Review and Rebalance: Regularly review and rebalance your portfolio. This ensures alignment with your risk profile and financial goals.

Consult a Certified Financial Planner: Personalized advice from a certified financial planner can help optimize your investment strategy. They can tailor recommendations based on your specific needs and goals.

Conclusion
Your current investments in NPS and mutual funds show good financial discipline. With some adjustments and increased contributions, you can work towards achieving a sufficient retirement corpus.

Consider inflation, lifestyle needs, and maintain a diversified portfolio. Regularly review and adjust your investments to stay on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6986 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 04, 2024

Asked by Anonymous - Jun 25, 2024Hindi
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Hi Sir, I am 53, volunteerly retired from pvt firm. I am doing NPS.. looking for pension in my 60 th year. I have invested in MF and Stocks and they are doing well and earning in the range of 12-18%. My NPS is doing arround 10-11%. I am looking my retirement monthly income arround Rs.50,000. Right now I have 10 lakhs in the NPS. What measures should I take to achieve my NPS income. I have no regular income but I can invest lump sum to achieve this Target if so How. Two way I can make lumpsum is by selling the plot worth 30 lakhs and shifting my MF/Stock amount to NPS account..Advise.
Ans: As you approach retirement at 53 with the goal of securing a monthly income of Rs. 50,000, it's essential to craft a robust financial plan that leverages your current assets and optimizes your investments for long-term stability and growth. Here’s a detailed strategy to help you achieve your retirement income target.

Assessing Your Current Financial Landscape
Existing Assets
National Pension System (NPS): Currently holding Rs. 10 lakhs, with an average return of 10-11% annually.
Mutual Funds (MFs) and Stocks: Investments performing well, yielding between 12-18% returns.
Real Estate: A plot valued at Rs. 30 lakhs, which you are considering selling to enhance your retirement funds.
Retirement Income Goal
Monthly Income Objective: Rs. 50,000
Retirement Income Planning
Optimizing National Pension System (NPS)
Enhancing Returns

To meet your income target effectively through NPS:

Increase Contributions: Boost your monthly contributions to NPS. Given the opportunity to invest a lump sum from the plot sale, this can significantly augment your NPS corpus.

Asset Allocation Strategy: Diversify NPS investments across equity, corporate bonds, and government securities. This diversified approach balances risk while aiming for growth in retirement funds.

Utilizing Lump Sum Funds
Strategic Investment

Proceeds from Plot Sale: Selling the plot and reinvesting in NPS can accelerate your retirement savings trajectory. This infusion allows for faster accumulation towards your income goal.

Tax Optimization: Evaluate tax implications and utilize NPS tax benefits to maximize retirement savings from the plot sale proceeds.

Leveraging Mutual Funds and Stocks
Asset Management

Portfolio Review: Evaluate MF and stock holdings. Consider reallocating a portion into NPS to align with retirement income objectives and diversify risk effectively.

Risk Mitigation: Maintain a balanced risk profile with continuous monitoring of MFs and stocks. Ensure these investments contribute positively towards your retirement income target amidst market fluctuations.

Long-Term Financial Security
Planning for Future Needs

Inflation Protection: Incorporate inflation adjustments to preserve retirement income purchasing power. NPS’s market-linked returns can help hedge against inflation risks over the long term.

Emergency Fund: Maintain a liquid emergency fund equivalent to 6-12 months of expenses. This safety net ensures financial resilience during unexpected events, safeguarding retirement plans.

Final Insights
Achieving a sustainable retirement income of Rs. 50,000 requires a comprehensive strategy that integrates income generation, risk management, and strategic asset allocation. By maximizing NPS contributions, utilizing proceeds from the plot sale to bolster NPS investments, and maintaining a diversified portfolio across NPS, MFs, and stocks, you can effectively work towards your retirement income target with confidence.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |6986 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 07, 2024

Asked by Anonymous - Oct 04, 2024Hindi
Money
Hi Vivek, my question is around retirement saving taxation and if one should invest in NPS based on the same. So like anyone with Basic of 41L annual, already has EPF of 5.9L. NPS at 14% means 6.9L, and so the total retirement contribution = 12.8L annually. So should NPS be considered? If yes how much annually?
Ans: At a basic annual salary of Rs 41 lakh, your retirement contributions through EPF and the National Pension System (NPS) are substantial. The current Rs 5.9 lakh from EPF and Rs 6.9 lakh from NPS (at 14% employer contribution) amount to Rs 12.8 lakh annually. Now, the critical question arises: should you further invest in NPS? Let’s evaluate this in detail.

Understanding Your Current Contributions
1. EPF Contributions
The Employees' Provident Fund (EPF) provides a safe and relatively high-interest-bearing retirement savings option. Your EPF contribution of Rs 5.9 lakh annually is a good start toward securing your retirement.

2. NPS Contributions at 14%
The employer contribution to NPS at 14% results in an additional Rs 6.9 lakh towards your retirement savings. NPS, being a market-linked investment, has the potential to grow at a higher rate than EPF, depending on the asset allocation and fund performance.

3. Total Retirement Contribution
With Rs 12.8 lakh already allocated annually, you have a substantial amount being set aside for your retirement. However, you might still want to consider whether this will be enough to meet your long-term goals, factoring in inflation and your future expenses.

Should You Invest More in NPS?
1. Tax Benefits of NPS
NPS provides attractive tax benefits under Section 80CCD(1B), where you can claim an additional Rs 50,000 tax deduction. This is over and above the Rs 1.5 lakh allowed under Section 80C. However, since NPS withdrawals are partially taxed, you need to consider the tax impact on maturity. At retirement, 60% of the NPS corpus is tax-free, while the remaining 40% must be used to purchase an annuity, which is taxable as per your slab.

2. Balancing Tax Savings with Liquidity
While NPS offers tax savings during the accumulation phase, the lack of liquidity and the mandatory annuitisation on retirement limit your control over the funds. If liquidity during retirement is important to you, you may want to reconsider how much more to invest in NPS.

Diversifying Beyond NPS
1. Equity and Debt Mutual Funds
If you are looking for more flexibility and control over your investments, mutual funds offer a better alternative. With a wide range of options in equity, hybrid, and debt funds, you can align your portfolio with your risk appetite. Unlike NPS, mutual funds provide easier access to your funds, should the need arise before retirement.

2. Benefits of Actively Managed Mutual Funds
By investing through regular mutual funds with the guidance of a Certified Financial Planner (CFP), you benefit from active fund management. This allows you to maximise your returns while minimising risks, unlike passive investments such as index funds that lack the flexibility to adjust to market conditions.

Limitations of NPS
1. Taxation at Maturity
As mentioned earlier, while NPS contributions provide tax relief during the accumulation phase, the maturity proceeds are partially taxed. The 40% annuitisation is a significant limitation, as it locks in your funds and subjects the annuity income to your regular tax slab.

2. Lack of Liquidity
NPS does not provide the same level of liquidity as mutual funds. Once invested, your money is locked in until retirement, with only limited withdrawals allowed under specific circumstances like medical emergencies or home purchase.

How Much to Invest Annually?
1. Additional NPS Contributions
If you decide to invest more in NPS, you can contribute an additional Rs 50,000 annually to avail yourself of the tax benefit under Section 80CCD(1B). However, whether to invest more than this amount depends on your overall retirement strategy and liquidity requirements.

2. Diversification Strategy
Instead of increasing your NPS contribution beyond Rs 50,000, you might consider diversifying your retirement savings across different asset classes. A well-balanced portfolio with a mix of equity, debt, and hybrid funds, along with your existing EPF and NPS, will help you achieve your financial goals while managing risks effectively.

Taxation and Withdrawal Planning
1. Managing Taxation Efficiently
Given the tax implications of NPS withdrawals, it is crucial to plan your post-retirement cash flow efficiently. You can stagger your withdrawals from NPS to reduce the overall tax burden, while ensuring that you meet your retirement income needs. Additionally, investments in mutual funds can be structured in a way that minimises the tax impact, especially with the new rules for long-term and short-term capital gains taxation.

2. Tax on Equity and Debt Mutual Funds
When selling equity mutual funds, long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%, while short-term capital gains (STCG) are taxed at 20%. For debt mutual funds, LTCG and STCG are taxed according to your income tax slab. By investing in these funds, you can create a tax-efficient portfolio that balances growth with tax savings.

Long-Term Wealth Creation
1. Power of Compounding
The earlier you start investing, the more you can benefit from the power of compounding. Whether it’s NPS or mutual funds, long-term investments have the potential to grow exponentially over time. A combination of NPS, EPF, and mutual funds will ensure that you have a diversified retirement corpus.

2. Regular Portfolio Review
It’s important to review your portfolio regularly, especially as you near retirement. Your financial situation, risk tolerance, and market conditions will evolve over time. By working with a Certified Financial Planner (CFP), you can ensure that your retirement plan remains on track.

Final Insights
To summarise, NPS offers significant tax benefits and is a solid retirement option, but it comes with limitations like taxation at maturity and mandatory annuitisation. If you wish to further invest in NPS, limit it to Rs 50,000 annually to avail the tax benefits under Section 80CCD(1B).

Instead of putting all your eggs in the NPS basket, consider diversifying your investments across actively managed equity and debt mutual funds. This will provide you with flexibility, liquidity, and potentially higher returns, while allowing you to manage your tax liability effectively.

Regularly review your portfolio and adjust your contributions as you approach retirement. By diversifying your investments and seeking the guidance of a Certified Financial Planner (CFP), you can secure a comfortable and financially stable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

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Anu Krishna  |1281 Answers  |Ask -

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Anu Krishna  |1281 Answers  |Ask -

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Help me!!! 1.I'm starting new "work" on my own(challenging for me) but my mind says quit it, be quite & do nothing. I myself don't know that wether the result of work will be +ive or uncompleted like alws. 2. My mind has become like order seeker type, when someone orders me, I do those things with dedicated(but sad from inside) manner. But when myself will try something different(which i fear, but necessary) then. "I QUITS IT" & sometimes I don't even start. 3. I'm like stuck no clue what/whom I want to do in life, I'm in cllg(1 yr) doing (CSE) ,. 4. I want to do/try (sports,talking girls,study,stocks,coding..) many things, but myself, my thoughts(overthinker), R like just be in the place where u are[confused,po*n,think about past/future(being billio..re,olympics..), girl (that u liked & never talked), abusive/beating self,.. sometimes feels like end life, but don't hv courage for that also.. 5. I tried self help books, spirituality, god, self affirmation, writing... & thay affected me(sometimes) but for only some time, then again that devil me comes up &these things never get completed. As no one in my family knows about all these, so that's Y ,I hv to fight/loose/try again, the battles with myself.
Ans: Dear Harsh,
If in the past you have had the urge to QUIT, how is this time going to be different? This is not to discourage you from taking up 'new work' but pointing out that there is some amount of work that you need to put to clear the mind out of blockages.
-What is limiting you?
- What is the reason for putting off things?
- What comes first to the mind when you start something new?
Also, focus on one thing at a time; study and go deep into it...what's this thing with work? I don't understand. When the mind is unsettled, take one thing/activity, pursue it and finish it. It could simply be studying for Year 1 of your college...just only do that...once your mind is trained in completing an activity, you can add another one the next year along with studying and then pursue both...it could be some sport and studying...then the next year, you could add a third activity. This is called 'training the mind in discipline'. Discipline will make sure that you start and finish things...So, go slow and do one thing at a time.

All the best!
Anu Krishna
Mind Coach|NLP Trainer|Author
Drop in: www.unfear.io
Reach me: Facebook: anukrish07/ AND LinkedIn: anukrishna-joyofserving/

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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