I am 36 years old and earn Rs 50,000 a month. I plan to retire when I’m 60 years old and would like to have a pension of Rs 40,000 a month (at today’s prices). How much do I need to save every month to be able to achieve this?
— Anuj Gupta, Jamnagar
If we assume a life expectancy of 80 years, you will require a corpus of Rs 2.36 crore to get a pension of Rs 40,000. We have assumed a long-term return of 12% till retirement and 8% after retirement (both are pre-tax returns), and an inflation rate of 5%. Based on the above assumptions, you need to invest Rs 14,117 per month for the next 24 years. These figures may change according to market conditions.
You have not specified your risk profile. However, considering your age and time horizon, you can be an aggressive investor and consider equity mutual funds. If you want a 100% equity exposure, invest in a largecap diversified equity fund, but if you want a higher debt exposure, go for a mutual fund pension scheme such as Templeton India Pension Plan or UTI Retirement Pension Plan. Alternatively, you can choose unit-linked pension plans from insurance companies or subscribe to the New Pension Scheme launched by the government.
I want to invest Rs 5 lakh in two monthly income plans (MIPs), and the dividend received from them, in equity funds. Is this a good strategy or should I opt for the cumulative option? I have an 8-10-year investment horizon.
— Umesh Yadav, Bhubaneswar
Monthly income plans are designed to give regular income to investors. The corpus is invested in a mix of debt (70-90%) and equity (10-30%). While they distribute monthly dividends, this is not mandatory for an asset management company and depends on the distributable surplus in the scheme. Your choice of dividend or cumulative option should depend on whether you want regular income.
Since you intend to reinvest the monthly income from MIPs in equity funds, it would be advisable not to go for the dividend option. Dividends of debt-based mutual funds attract a dividend distribution tax, which reduces the investor’s return. Instead, you should invest in the cumulative option and then start a systematic transfer plan to the equity scheme of your choice. This will also save you the hassle of depositing the dividend cheque in your bank account and then investing the money in the equity fund. A few good MIPs are Principal MIP Plus and Birla SunLife Monthly Income Plan.
Also, consider the tax implications and other costs of your investment strategy. If debt-based funds are redeemed before a year, the profits are added to the income for the year. After a year, they attract long-term capital gains tax of either 10% (flat) or 20% (after indexation).
I changed my job in July this year. My previous employer is not issuing Form 16 to me, saying no tax was deducted at source (TDS) on my salary as it did not attract income tax. If there was no TDS, does it mean I don’t have to file my income-tax return?
— Manoj Sharma, e-mail
Form 16 is issued by an employer and it lists the amount of TDS deducted on an employee’s salary. Your previous employer might not have deducted tax as it could have been below the TDS limit. In such a case, it is advisable to obtain a salary certificate, which lists the gross salary received by you for the period served.
Your taxability for a financial year is determined by the total income earned by you for that year. This includes the salary drawn from all employers with whom you work in a year and other sources of income such as interest, rent and share trading. If your total income exceeds the threshold limit of Rs 1.6 lakh for the financial year 2009-10, you must file your return. You should disclose your previous salary to the new employer to enable him to compute tax on your total income and deduct TDS accordingly.
I have received 1,000 bonus shares free of cost. Do bonus shares reduce the cost per share or are they accounted for separately? How will the profit from these shares be taxed if I sell them within a year?
— D.S. Chawla, Gurgaon
The cost of original shares is the amount paid by you to acquire them and remains the same even after bonus shares have been issued. The cost of bonus shares is taken to be nil.
If you sell the bonus shares within a year, the money received by you will be considered a shortterm gain and will be taxed at 15%, plus cess. The sale will have to be conducted through a recognised exchange where securities transaction tax (STT) is deducted. If the shares are sold after a year and STT is deducted, the amount received will be considered a long-term capital gain and will be exempt from tax. If the STT is not deducted, the long-term gain will be taxed at the rate of 10% along with cess.
I am retired and get a pension of Rs 20,000 a month. Out of my corpus of Rs 30 lakh, I have invested Rs 15 lakh in bank fixed deposits. Where should I invest the balance? My financial goals include the marriage of my two daughters, aged 20 and 15 years. I live in my own house and intend to buy another for around Rs 30 lakh. Is this plan feasible?
— A. Krishnan, e-mail
For retired people like you, safety of capital is very important. You have done well to invest in fixed deposits. Avoid investing in equities because if the stock market crashes, it may take months, even years, to recover. Here is how you should invest the balance corpus:
Senior Citizen’s Scheme: This is a government plan that gives assured returns of 9% per annum and investments are eligible for tax under Section 80C. The tenure is five years, extendable by three years, and the interest is paid every quarter. We suggest you invest Rs 10 lakh in this plan, which would earn Rs 22,500 every three months. However, this income is taxable.
Monthly income plans: These plans invest only a small portion (between 10% and 30%) of their corpus in equities and, therefore, are not prone to volatility as equity funds are. Opt for the cumulative (or growth) option.
Real estate: It is not feasible for you to buy another house. Real estate prices are already quite high and there are indications that they will not rise for some time. In some areas, they may actually come down by 10-15%. Also, you may not get a home loan easily because you are retired and paying for a house with cash would lead to a liquidity crunch. Ulips and pension plans: Do not buy any pension plan, insurance scheme or unit-linked product as up to 30% upfront charges are deducted on a Ulip in the first year.
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