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Laddering: A New Strategy for Higher Fixed Deposit (FD) Returns

Mohan N
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Laddering: A New Strategy for Higher Fixed Deposit (FD) Returns

What is the secret of getting higher fixed deposit returns? Avoiding penalty on invested amount and keep the amount invested till maturity. Still, we need to make premature withdrawals from FDs. Laddering of Fixed Deposits (FD) helps avoid loss of interest, in case of premature withdrawal of money. In this method, the total amount should be invested in FDs of different timeframes.

Investment in FD comes with a guarantee of steady returns along with surety of principal protection. It is always advisable to park emergency funds in the form of FDs. Also, retired persons or senior citizens feel more comfortable with investing in FDs. They also offered higher interest rates. If we compare FD interest rates from banks, we find that small finance banks such as RBL Bank offer 8.3% per annum interest rates to senior citizens on 15-24 months FD. State Bank of India is also offering 7.6% per annum interest rates on 400 days FD to senior citizens (7.1% to public). Such higher interest rates entice many risk-averse investors to put their funds in these traditional investments.

While FDs offer guaranteed returns and a low-risk product, there are still some issues with it. Such as there is a mandatory lock-in during the tenure of FDs. Though you can withdraw by prematurely closing FDs, it comes with penal charges. Such penalty ranges from 0.5% to 1% in different banks. Other than penal provisions on FDs, investors also lose out on FD interest with withdrawn funds. Also, the investor is paid much lower interest on withdrawn funds.

Now you may understand, why banks keep on pushing customers to make FDs. This is most profitable for them. They get the money and due to premature withdrawal, they pay lower interest. Therefore, pre-mature closure of FDs results in loss of principal and interest amount.

Laddering Strategy: Strategy for higher fixed deposit return

In the Laddering strategy, the investor divides the investible FD amount into smaller parts and then creates FDs of different tenures, thus ensuring higher fixed deposit interest. The following example will help in understanding this better.

Assume, you have Rs. 5,00,000 for investment in FD.

Option-1: You would invest the entire Rs. 1,00,000 in a single FD of a tenure say, 5 years.

Option-2: Laddering strategy, wherein the investor divides the amount as below:

FD 1: Rs. 1,00,000 in 1 year FD

FD 2: Rs. 1,00,000 in 2 years FD

FD 3: Rs. 1,00,000 in 3 years FD

FD 4: Rs. 1,00,000 in 4 years FD

Now, suppose you need funds Rs. 70,000 urgently, say after 7 months of FDs creation.

In Option-1 you prematurely close FD. Pay penal charges of 0.5% – 1.0% of the principal amount i.e. Rs. 5,000. Also, interest will be paid to the extent of a tenure of 7 months.

In Option-2 you close FD 1 prematurely. FD 2,3,4 continues to earn interest with no penalty. There will be lower penal charges of Rs. 1,000. Thus higher fixed deposit returns. 

Thus Laddering strategy ensures that

  1. There will be flexibility in investment options, as you have FDs of different tenures. So you liquidate shorter-term FDs first.
  2. You have liquidity w.r.t. your investment. You need not liquidate a big FD. Rather a smaller FD liquidation serves the purpose.
  3. You get a higher fixed deposit return on longer-tenure FDs. FDs opened for 4-5 years get the highest interest. Your substantial amount gets locked for the entire duration.
  4. There is a lower penalty for premature closure. Since a lower amount of FD is liquidated first, the substantial sum remains invested.
  5.  You can utilize money in emergency expenses with minimum loss in interest
  6. Liquidity ensures that you can utilize the money if any other profitable investment opportunity arises.

Is it the right time to start investing in mutual funds?

Mohan N
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Is it the right time to start investing in mutual funds?

Young investors often ask…Is it the right time to start investing in mutual funds? By “Young Investors” I mean someone who has never invested in mutual funds. If you are such an investor, this article is for you. For you, the timing of investment in mutual funds will depend upon your financial situation, investment goals, risk appetite, and market conditions.

Mutual funds have long been considered a popular investment vehicle for long-term wealth building and achieving financial goals. For considering saving and investment, it is never a bad time. However, new investors should always avoid investing in shares directly. A mutual fund is a much better way to invest in the market.

One should always start investing as early as possible in life. It is also important to stay invested long term, as the magic of compounding works in the long term. But how much is long-term? Mr. Buffett says that his investment horizon is forever. But looking at the past performance of mutual funds in several market cycles, it is better to remain invested for at least seven years. In seven years, the probability of making a loss becomes too small (though it does not vanish).

Right Time to Invest through SIP

You should start investing using a Systematic Investment Plan (SIP) facility in a mutual fund. SIP is a process where an investor automatically invests an equal amount every month at a fixed date. Investing every month helps in rupee cost averaging. So, when the market goes down, more units are bought at the same investment amount. Also, while invested long term in SIP, the benefits increase due to power of compounding.

Automatic investment at the start of the month

Making the process automatic means, one does not have even to plan or think about making investments. This is useful in keeping emotions away. Whether the market is good or bad, a fixed amount gets invested without the intervention of the investor.

Choose performing mutual funds

Mutual funds giving better returns than their benchmarks should be selected for investments. From the sea of mutual funds, you can also look at thirty mutual funds selected by MoneyControl (MC30). Always look at the annualized performance of five years first, then three years, and then one year. A fund that is consistently giving top returns in 5 years and 3 years periods, while charging a low fee, can be considered for investments. While selecting funds, equity and debt funds can be selected as per the risk appetite of the investor.
If you do not trust a mutual fund manager, then you can invest in index funds. Index funds are passive vehicles with lowest cost structure. Again there are multiple index fund options available. Index fund should be of lowest cost, lowest tracking error and of good mutual fund house.

Regular review

You should regularly review of your mutual funds, as it can help eliminate non-performing funds with higher exit loads, expense ratios, etc. You should give at least three years to mutual fund, before replacing it. If equity fund is giving an average XIRR of more than 16%, then you should continue in that fund. If returns drop below 15%, then cautiously watch the fund for some more time. If it drops below 12%, while benchmark returns are much higher, then you should take out money and reinvest in performing funds.

Conclusion

The above guidelines are for new investors. After spending some time in the market, you can understand the risk-reward ratio. Then you can think of increasing your investment horizon by investing in other asset classes. Please note that selection of a mutual fund is a simple yet important process. You should give proper thought to equity-debt ratio and asset allocation before starting your investment journey.



Jeevan Pramaan Patra (Digital Life Certificate): 4 Steps To Submit Online in 2024

Mohan N
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Jeevan Pramaan Patra (Digital Life Certificate): 4 Steps To Submit Online in 2024

Jeevan Pramaan Patra (Life Certificate) is a mandatory requirement for pensioners to be submitted to the government every year. There are more than a crore pensioner families, where pension is disbursed by government agencies. There are about fifty lakh Central Government pensioners and another fifty lakh pensioners of various State Governments, Union Territories, and other agencies of public sector enterprises. In addition to this, about twenty-five lakh defense personnel (Army, Navy, Airforce) also draw pensions.

Now there is an online facility by which pensioners can submit their Jeevan Pramaan from the comfort of their homes. Following is the step-by-step process for submitting a Life Certificate (Jeevan Pramaan) using an Android smartphone. It does not require any external devices. Pensioners need not visit any bank/ post office etc.

Table of Contents

Smartphone specification required:

  • Android smartphone (version 7.0 or above) (device must be unrooted)
  • Internet connection
  • RAM: 4+GB
  • Storage: Minimum 500 MB free storage
  • Camera resolution: 5 Megapixel or more

Jeevan Pramaan (Life Certificate) Process

Step-1: Search, Download, and install the AadharFaceRd App from Google Playstore

Search for the AadharFaceRd app as shown in the below image and download the app. Please check before downloading that the app must be from the Unique Identification Authority of India (UIDAI). This UIDAI app is designed specifically to assist with the operational processes required for the Jeevan Pramaan Application to function properly. It is critical that you download the most recent version compatible with the Aadhaar Face RD application, which is currently version 3.6.3.

AadharFaceRd
AadharFaceRd app

Even after downloading, you won’t be able to see this app with other apps on your phone. This app will be visible in Settings > App Info as shown in the below image.

AadharFaceRd App

Step 2: Download the Jeevan Pramaan Face App from the Google Play Store

Search for the Jeevan Pramaan Face App as shown in the image below and download and install it.

Jeevan Pramaan app

After you have successfully installed the app, please run the app. You can see the below image.

Jeevan Pramaan face app

After that, the app asks for continuing with a supported biometric scanner. Click “Yes” and proceed further.

Jeevan pramaan Face app

Then a pop-up will appear, asking for permission to Jeevan Pramaan app to take pictures and record videos. Allow the permissions “While using the app” to proceed further.

Jeevan pramaan app

Another pop-up will appear, asking for permission to Jeevan Pramaan to access photos and media on your device. Click on “Allow”.

Jeevan pramaan app

Step 3: Operator Authentication

Any person helping a pensioner can act as an Operator. Even a Pensioner can act as an Operator. The Operator needs to enter his/ her Aadhar number, Mobile number, and Email address and then submit (please see in below image). The application can also be operated using Hindi. Please select the Hindi dropdown from the top right corner.

Jeevan pramaan app

You will receive an OTP on your mobile and the email given above. Enter OTP and submit. Please click on Resend OTP button, in case OTP is not received.

Jeevan pramaan app

After successful validation, a screen as shown below will appear, where the Operator will be required to give his consent for authentication by selecting the check box. Then click on the “Scan” button to proceed toward the face scan.

Jeevan pramaan app

Next a pop-up will ask…”Do you want to scan face?” Click “YES” to proceed further.

Jeevan pramaan app

Next, the screen will show the instructions for face authentication. Keep lighting even and proper on the face. Maintain an appropriate distance from the device camera. Then, click on “PROCEED”.

Jeevan pramaan app

Now the camera will detect the face. You can use a front or back camera for scanning. You need to hold the camera and face still and blink when such instructions appear on the screen. Follow the instructions given on the screen for successful authentication.

Jeevan pramaan app

After successfully authentication, the app restarts, and the message is shown as in below image “ Client Registration Successful”. This means that Operator registration is successful.

Jeevan pramaan app

Step 4: Pensioners Authentication

Next, the Pensioner authentication screen will open. The pensioner needs to enter his/her Aadhar number, mobile number, and email address. Then click on “Submit”.

Jeevan pramaan app

Enter the OTP received and click on the “Submit” button to proceed further.

Jeevan pramaan app

After successful OTP validation, the below screen appears asking for details of Full name (as in Aadhar), Type of pension, Sanctioning agency, Disbursing agency, PPO number, and account number (Pension). This screen may be prefilled with data or may be blank. In case, it is prefilled, please check the details. Otherwise, fill in the details. Then, check the 2 boxes and “Submit”.

Jeevan pramaan app

In case you want to modify PPO number, select “Add new Pension PPO” from the top drawdown and modify details. After submitting, a pop-up will appear as per below image, asking “ Do you want to Add new pension PPO not in the list for yourself”. Click “YES” if you want to enter. Then user will be required to select all the details such as Type of pension, Sanctioning agency, Disbursing agency, PPO number, and account number (Pension).

Jeevan pramaan app

Next, the screen shows all PPO numbers selected by Pensioner. Pensioners need to check the box to give consent. Then click on “SCAN” to proceed further.

Jeevan pramaan app

Next, a pop-up will appear, asking “ Do you want to scan face? ” Click on YES to proceed further.

Jeevan pramaan app

Once face authentication is successful, the Digital Life Certificate (DLC or Jeevan Pramman)  is successfully generated. The screen shows Pramaan ID for each PPO. The Pensioner also receives a Pramaan id and a link to download DLC on SMS.

Final picture on submission

Pensioners are required to present Jeevan Pramaan (Life Certificates) to accredited pension disbursing organizations, such as banks and post offices, so their pension can be credited to their account after they have retired from the service. The person receiving the pension must either appear in person before the pension disbursing agency or have the life certificate issued by the authority, where they previously served and have it delivered to the disbursing agency to obtain pension.

The necessity of physically appearing before the disbursing agency or obtaining a Jeevan Pramaan frequently proves to be a significant obstacle to the smooth transfer of pension funds to the retiree. It has been observed that it results in significant hardship and needless inconvenience, especially for elderly and frail pensioners, who are not always able to appear before the relevant authority to obtain their life certificates. Furthermore, many government employees decide to relocate after they retire, either to be closer to family or for other reasons. This presents a significant logistical challenge for them when it comes to obtaining their full pension amount.

By digitizing the entire Jeevan Pramaan application process, the Government of India’s Jeevan Pramaan Digital Life Certificate for Pensioners Scheme aims to address this exact issue. It seeks to simplify and make the pensioners’ experience hassle-free when obtaining this certificate. This initiative greatly benefits pensioners and removes needless logistical obstacles by eliminating the requirement for pensioners to physically appear in front of the certification authority or the disbursing agency.

Early Retirement Planning: How to Achieve a Secure Future in 14 Steps

Mohan N
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0
Early Retirement Planning: How to Achieve a Secure Future in 14 Steps

Ever thought of early retirement planning? Most of us think, but how many have a proper plan. We all look forward to this stage of life. This is the time to unwind, go on trips, engage in hobbies, and spend time with those you love. Nonetheless, careful planning and saving are essential to ensuring that your retirement goals become a reality. This article will walk you through the crucial actions you need to do, to safeguard your future and have a pleasant retirement.

Step 1: Set Clear Goals for Early Retirement Planning

Setting goals is the first stage in early retirement planning. For you, what does a prosperous retirement look like? Think about things like your ideal lifestyle, the age at which you wish to retire, and any particular aspirations or objectives you may have for your retirement. It will be easier for you to estimate how much money you’ll need to save if you have a clear vision. Every 5 years, make a detailed review and check if you are on the right path.

Step 2: Calculate Your Retirement Expenses

You must project your future spending to calculate the amount of money you will need for retirement. Begin by taking into account your basic spending, which includes housing, utilities, groceries, medical care, and transportation. Remember to factor in inflation. Then, include optional costs for things like entertainment, hobbies, and travel. This will provide you with a ballpark figure for your annual retirement expenses.

Step 3: Assess Your Current Financial Situation

You must ascertain your existing financial status before you can start saving for retirement. Examine your earnings, outgoings, debts, and possessions carefully. To determine your net worth, construct a balance sheet. Making educated judgments about your retirement plan will be made easier if you are aware of your financial situation.

Step 4: Build an Emergency Fund

Preparing for retirement requires having an emergency fund. It guarantees that in the event of unforeseen costs, you won’t take money out of your retirement savings. The goal should be to accumulate three to six months’ worth of living costs in a different, conveniently located account.

Step 5: Choose Retirement Accounts

There are various options for retirement accounts, and each has special tax benefits. National Pension System (NPS), Atal Pension Yojana, Contributary Provident Fund (CPF), Public Provident Fund, etc. are popular choices. The best combination for your circumstances will depend on your consideration of your employer’s retirement plan as well as your research into individual retirement accounts.

Step 6: Determine Your Retirement Savings Target

You can determine your savings goal by multiplying your projected retirement costs by your anticipated retirement age. For a more accurate estimate, you can speak with a financial advisor or use online retirement calculators. Keep in mind that since unforeseen expenses might occur during retirement, it’s always preferable to aim high and save more.

Step 7: Create a Budget

You must effectively manage your budget if you hope to save enough money for retirement. Set aside some of your income for retirement savings, then follow through on your plan. Keep tabs on your expenditures, make necessary cutbacks, and allocate the proceeds to your retirement accounts.

Step 8: Maximize Your Contributions

Make the most of any employer-sponsored retirement plan, such as NPS, CPF that your company may offer. Give at least what is required to get the full employer match because it is practically free money. Aim to contribute the maximum amount per year to your individual retirement account in NPS and PPF. Also don’t forget to invest in equities through mutual funds Systematic Investment Plan (SIP). This will provide inflation-proof income over long term. You can invest in index mutual funds to avoid high costs.

Step 9: Diversify Your Investments

The secret to controlling risk in your retirement portfolio is diversification. Invest in a variety of asset classes, including bonds, equities, property and cash equivalents. You can reduce risk and increase returns with this strategy.

Step 10: Regular review and course correction

Retirement planning is a continuous process rather than a one-time event. Every year or whenever a big life event happens, like a change in your income, marital status, or health, you should review your plan. Make the required modifications to keep your retirement plan on course.

Step 11: Consider Healthcare Costs

Your retirement budget may include a sizeable portion for healthcare costs. Do not depend on kids to foot your medical bills. Make sure, you have enough health insurance in retirement. Other than your employer-provided insurance, take your own health insurance too. At old age, it would be difficult to get a new health insurance, when employer-provided insurance ends on retirement.

Step 12: Develop a Withdrawal Strategy

You’ll need to plan how you’re going to take money out of your retirement accounts when you retire. Recognize the regulations governing withdrawals and their tax ramifications. You may also want to consult a financial advisor to develop a withdrawal schedule that fits your retirement objectives.

Step 13: Estate Planning

To safeguard your assets and make sure your beneficiaries are taken care of, estate planning is essential. Consider making trusts, naming beneficiaries for your retirement accounts, and drafting a will.

Step 14: Enjoy Your Retirement

You can retire early with confidence if you’ve followed these guidelines and created a sound retirement plan. Take advantage of your well-earned retirement years, follow your passions, and make priceless memories with loved ones.

Remember that early retirement planning is an ongoing process and that there is never a bad time to get started. You must start thinking about retirement, as soon as you start your working life. Your retirement will be more secure, the earlier you start because you’ll have more time for your money to grow and compound. To make the most of your golden years, do not hesitate to work with financial advisors and stay up to date on the newest retirement trends and tactics. You can have the retirement of your dreams if you put in the proper preparation and discipline.

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