This is one of the most common questions that the investors in their late 50's, about to retire in the next few years, have. One of the fundamental concepts of investing is keeping the portfolio allocation bent towards equity when the investor is young and as he/she grows old, debt should occupy a major share of the Portfolio. However, it is seen that many investors take the concept to extreme levels by liquidating their entire equity portfolio and converting it to 100% debt, when their retirement approaches.

Is this the right thing to do?

Certainly Not.

This is not the right thing to be done, a balance needs to be maintained at all times, debt can control your risk, but it cannot grow your money. And you still have a third of your life, nearly 30 years lying ahead at the mercy of your retirement corpus. After all you have to plan for yours as well as your spouse's lifestyle maintenance for all those years.

So, what is the ideal Debt Equity allocation for retirees?

The answer to this is there is no specific allocation, it depends on the Retiree's financial position, Health and Risk tolerance levels. Say for instance, a retiree not having a source of regular monthly income, a traditional endowment policy in the name of insurance, only the Retirement corpus to bank upon for the rest of his life, it may not make sense for him to invest largely in equity or any other product which is risky in nature, because his principal need would be regular income and providing for emergencies. So, ideally this investor must be keeping a significant portion of the Portfolio in Debt so that the risk remains controlled, and he is able to meet his needs without the tension of losing the principal.

While bifurcating your portfolio between Debt and Equity, you must remember, that about the debt part along with Risk Control, Liquidity is also important. You'll be needing money for your regular income needs, plus there will be sudden expenses, like paying for AC repair, buying a new washing machine, buying an expensive wedding gift for your niece, helping an old friend in need, and the like. The remainder of your Portfolio can be directed towards wealth creation products like Equity mutual funds because there is a long period ahead and Equity's potential along with the power of compounding will work to push up the returns. Also, you must note that, when you use your debt investment, it's important to refill the safe investment bucket, from time to time, so that you have ample liquid and risk free money to last throughout your life.

The percentage allocation to Debt and Equity varies from person to person, it depends upon your financial position and various other factors, like if a retired person living in his own house, is getting a monthly pension, has a decent emergency fund, adequate medical and term insurance can consider investing a large part of his Portfolio in Equity since he has his expenses as well as risks covered.

You can sit with your advisor, and discuss with him your finances, your unique needs, your risk appetite and arrive at your ideal allocation between Equity and Debt. Further there are two approaches to maintaining your ideal asset allocation. You can have a fixed Debt Equity asset mix like 80:20 or 60:40 or 40:60, and keep rebalancing your Portfolio, to bring it back to the model Portfolio. Another approach is you can start with a portfolio with a higher allocation to Equity, since retirement may last for few decades, you can have a fair amount of Equity in the early stages and as you age, you can gradually bring down Equity and invest in debt, so may be when you reach your mid 70's, you can settle for a fixed portfolio.

Investing in balanced funds can also be considered, for maintaining the ideal asset allocation.

So the bottomline is, the general rule of increasing your asset allocation to debt when you are growing old, may or may not apply to you. It really depends upon a number of factors that is your unique circumstances. So, consult your financial advisor and devise your financial plan to ensure maximum peace in your second innings.

Like our marriage with our life partner, most of us develop a life long relationship with our investments, like our gold jewelery, the property we purchase, or even the PPF account we open for saving taxes. We seldom sell these assets.

One of the “first investments” of our lives is in a PPF account. The primary aim of investing in a PPF Account is tax saving and gradually the motive changes to providing a shell for our retirement years or meeting major life goals like daughter's wedding, children's higher education, etc. The gold jewelery that we purchased in the year 1990 is now worth ten times our purchase price, and it will be safe in our bank lockers for another 20 or 30 years or passed on to the next generation, at a worth much higher from now. The house that you are living in, or the flat which you bought 10 years ago, is now worth two to three times the value of your investment, and you might sell it only to purchase another bigger flat or to fulfill a life goal after may be 15-20 years.

Your PPF investment goes to the government and in return you get a fixed rate of interest plus you get tax benefit. Do you track your present value every now and then, did you panic when the government went to BJP from 10 years of Congress rule. No, you didn't bother, you kept depositing the PPF installment religiously. Did you sell your gold in the year 2013, when it reached 34,000 level? No you still hold it, prices fluctuate but you want to benefit from your investment in the very long run. Will you sell your house or the flat, when property price rise? No, it is your investment, you will hold on to it.

You are patient, because you are an Investor. You invest, you are patient, and your investments pay for your patience.

But when it comes to Mutual Funds, why do the rules change? Why don't we give time to our investment? Why do we keep tracking the latest value of the investment, Why our hearts sink when the markets fall, and so does our investment, Why do we sell our mutual funds when prices rise?

Mutual Funds have a track record of outperforming all other investment classes over a long period of time. Let's take an example of an equity mutual fund, HDFC Equity Fund, if you had invested Rs 10,000 in this fund on Jan 1, 1995 (inception date), it's value today would have been Rs 460,124 (Source: NJ Internal Research), which is higher than the average returns of gold, PPF and even real estate. This fund had yielded a return of 19.48% CAGR.

Mutual Funds have the potential, only if you give it time. Mutual Funds, apart from high returns, come with a blessing; Systematic Investment Plan (SIP) option. The SIP option enables you shape up your investment pattern. An SIP account is not an investment, rather it is a method of investing systematically.

An SIP account for a lifetime is investing small sums of money regularly throughout your life.

An SIP enables you to achieve all your life goals, without making a hole in your pocket in one go. Be it buying a house 15 years from now, or buying a car five years from now, your Mutual fund will be there for you. Even if your major life goals have been met by now, there are objectives which might erupt in due course. You might want to pass on something as a legacy to your grandchildren, or you might want to donate an ambulance to a hospital, or you would want to fund the education of your maid's children. Your SIP will be there to satiate your Philanthropic aspirations as well.

Let's say you start an SIP for an amount as small as Rs 500 a month for a period of 30 years, yielding an average return of 15% pa. Today Rs 500 a month is equivalent to the price of a Cheese burst pizza, tomorrow it might be able to buy only a Chocolate. But do you know what would be its worth 30 years later?

Rs 28.16 lacs

Yes, the money you spend on a pizza today or a chocolate tomorrow can give you Rs 28.16 lacs.

What if you commit Rs 500 for the next 50 years, which might be given to your granddaughter on her 16^th birthday?

Rs 4.67 crores

The pizza or the chocolate or may be a candy can build Rs 4.67 crores of wealth for your granddaughter.

An SIP account is a step by step process of investing, and like they say The Cup of knowledge is filled one at a time, SIP fills your cup of wealth one at a time.

Reach your advisor, and ask him to find a suitable mutual fund scheme for you, for meeting your goals in the very long run. Start an SIP option in the fund of your choice from the very beginning.

Like your PPF, or your RD, keep depositing your SIP installments. There will be times when your investment will fall or rise, don't get excited, relax. Keep investing. 20 years hence, when you will check your account, you'll be elated to see your money's worth. During this tenure, you might be tempted to buy a car or a phone, do not break your SIP for leisure. You SIP is your lender of last resort, redeem it only when all other doors are shut, only when you are in dire need of money. Yet if you withdraw in an extreme case, do not stop paying your next installment. Remember, this will help you the next time when you are in need.

When you approach the age of retreat, you will realize that your goals are met, emergencies are taken care of easily, yet you have significant wealth created to support yourself in the end.

A mutual fund investment is your friend for life, and your SIP account is the string which connects you with your virtual friend.

We have our viewpoints about people, places, things and a variety of other stuff in life. Men look feminine in Pink, Chinese is better than Italian, or the other way round, hills are more serene than beaches, and vice versa, and likewise. We cling on to our ideas and perceptions, and over time they become fundamental to our existence. Our perceptions are influential in character and control our decision making ability. They become so inherent to our nature that it is difficult to think and take decisions from a neutral mindset. Likewise, many of us have also developed some perceptions about investing, which are mostly misconceptions, they have hampered our decisions and have undermined the growth numbers of our investments. In this article, we have listed and have tried to debunk three most common myths associated with investing:

1. My traditional life insurance policy not just saves tax, but also provides Life Cover as well as Creates Wealth: The primary reasons behind investors buying traditional life insurance policies is they fall under Section 80C of the Income tax Act, along with PPF, NSC, FD, etc. And secondly they serve the dual purpose of investment as well as insurance. But the irony is a traditional endowment policy practically doesn't serve the purpose, it isn't good at any of the above.

Facts:

1. Yes, the traditional endowment policy does save tax, but that's the only real return you get out of it. The return numbers are so petty that they may barely cover inflation.

2. The cover that these policies provide is again highly inadequate to take care of your dependents' needs for a long period of time, vis a vis the high premiums you pay. The modern term covers are much more affordable in terms of premiums and the cover provided also justifies the term 'life cover'.

3. And Yes, you will get your investment back if you don't die after a certain period of time, but as indicated above the returns are slim, so the corpus you will get will also be modest. The modern ones won't give you your money back if you don't die, but they will serve their purpose, provide Adequate Insurance.

The best way to Invest in Equity is through IPOs: Many investors believe that investing in IPOs is the sure shot formula of making big bucks quickly. And this is the reason why the markets are flooded with IPOs in bull market conditions, companies want to capitalize on the positive market sentiment. People have made tremendous money in IPO's, but we must remember that not every IPO is D-Mart. If some investors have made money, many others have also lost money in IPOs. Investors aim to enter at low prices, but the reality is the IPO stocks are already overvalued when they enter and they lose money when they list and the prices correct to reflect the true value of the stock. Investing in Equity is not based on profiting from a day's volatility, the right way of investing in Equity is by focusing on the fundamentals and profiting from the long term growth of the company.

Lower the Price, Higher the Returns: Investors want to Buy Low and Sell High. On this basis many investors believe that a cheaper stock is a better deal than an expensive stock. But the reality is a Rs. 10 rupee stock could be expensive and a Rs 1,000 stock could be cheap. The price of the stock is based upon it's fundamentals, it's management structure, it's past earnings and future earnings potential, the debt equity ratio, etc. If the fundamentals are strong, the Rs 100 stock is capable of growing spectacularly and vice versa. The same applies to Mutual Funds also, lower NAV's don't mean that the fund is cheap or expensive, it reflects the fundamentals of the underlying stocks and other securities. Do not base your decision of investing in a Mutual Fund Scheme on it's NAV, NAV is just the price of a unit of the scheme, concentrate on your needs and try to match them with the fund's characteristics and investment objective. Your financial advisor will help you selecting the perfect fit for you.

To stand out among 1.35 billion people, to meet the growing needs, to build a career of their choice, students wish to pursue their higher education from premier institutions in India or abroad. But most often quality education comes at a very high price, and it may not be possible for parents to fund such expensive education from their existing resources. Education Loan offered by banks and NBFC's lays the way out, every year tens of lakhs of Indian students take education loans to pursue higher education and professional courses. Sometimes it is also not about affordability, many students take education loans because they don't want to burden their parents with their exorbitant education cost. Education loans brings higher education within students' reach, and also offers tax benefits on the interest paid on these loans under Section 80E of the income tax Act.

However, there are certain key points that you must take note of in context of education loan, that will help you better manage the loan:

Getting the Loan

• Compare before you choose: The rate of interest on education loan varies between banks as well as between the loan amount. The difference in interest rates charged by different banks on the same amount of loan can be as high as 4-5%. Also, your college may have a tie up with certain banks, and these banks may offer a discount on the interest rate. So, compare the loan terms of different banks including interest rates, processing fee, repayment terms, etc., before choosing the bank.
• Get the loan in tranches: Generally, the fee for higher education is payable in tranches, it can be semester wise or half yearly or quarterly, etc. It is ideal that you get the entire loan amount sanctioned, but withdraw only when your fee is due, since the banks will be charging the interest only from the time the loan amount is disbursed.

Repayment

We will first talk about the Repercussions of non repayment of EMI's

• Non Repayment of EMI's can result in imposition of Penalties.
• The Bank can seize the collateral attached to the loan.
• Credit score of the borrower as well as the co-borrower (usually parents of the borrower) gets tarnished, which hampers your access to any other loans, like home loans or car loans in the future.

Post the 2008 global recession, many students failed in repaying their loans because of lack of or underpaid jobs and have faced the above repercussions. Although the situation has improved, but still there are cases when students do not get jobs immediately after college. So, it is very important that when you take an education loan, you must have a repayment strategy in place.

The income in the initial years of your career is low, but the EMI's will be there, it is ideal to keep your expenses limited to make sure you don't miss your EMI's, also try to save some money after paying the EMI's and expenses and build an emergency corpus to ensure there is no disruption in the flow of EMI's in scenarios like a job loss, a sudden expense, etc. You can opt for the Auto debit option for your EMI's, so that repayment is taken care of automatically.

The Education loan EMI's generally starts after a year from the end of the course or six months after the job starts. This relief period is called the grace period or the moratorium period. The grace period is also a good time to start saving and creating a corpus for your education loan, since there will be no outflow of EMI's. This corpus will help you in filling any gaps in repayment that may arise in the future. You can invest your saving in a Liquid Mutual Fund, so that you get a better rate of return than what you will get in your saving account, you can make partial withdrawals plus it is highly liquid, so you can easily withdraw even one EMI from your liquid fund in case you are likely to skip one for lack of money.

Generally only simple interest is charged during study period, if you pay this simple interest during your course itself, it can significantly bring down your EMI's later.

What if you do not get a job? Before the bank starts penalizing you by levying heavy penalties for non repayment, and yours and your parents' CIBIL score is affected, talk to the bank representatives, a suitable alternative could be figured out and your loan repayment may be relaxed. The bank may either extend the moratorium period or reduce the EMI by extending the loan tenure, etc. You will find a job sooner or later, the idea is to keep the bank in the loop to avoid any negative consequences.

Before closing the article, we have a piece of advice for the readers, Start investing from Day 1 of your job, if the burden of Education loan EMI is too heavy, so is the need to get into the investing routine and securing your future. Start with a small amount, say with an SIP of Rs 1,000 and increase the amount gradually. Education Loan is probably the first loan taken by an individual, it teaches you a lot about money and debt management in the early stages of your career itself. We hope that the above passage will help you in managing your education loan well.