Money & Finance Archives

Home an Investment after 55? … Nah

When you grow up in India, you often hear that the house you purchase is the single best investment. Stories generally are abound about the fabulous wealth created in Real Estate Investment. For 55 plus population who are risk averse to equity markets and related investments, have surplus cash and limited investment options considering dwindling Fixed Deposit interest rates and other savings schemes, Real Estate looks all the more lucrative. This article tries to explain why the same is not always the case. So lets go about debunking a few of the prevalent myths:

Home prices always appreciate

Look around you, how many successful real estate investment exits have you seen recently. Consider a 1000 Sq. ft. Flat in an average(not so posh) location in a metro city like Kolkata. The mean will be around Rs. 70,00,000 (advertised as an apartment @ Rs 53,00,000) inclusive of costs like brokerages, registration, upkeep, parking etc. Now if some of you borrow to invest in houses, with average interest rates hovering around 6.75-8.5 % levels, over the long term period, the average return attained by investing in real estate, are even lower than the compounded rates for fixed instruments. Very poor investments considering ever growing inflation.

We will earn back the EMI’s

Firstly the average monthly rental for a 1000 sqft flat in an average location in Kolkata would be around the 10,000-15,000. The average person would take a home loan of at least Rs 55 lakhs for a home. The EMI will come close to Rs 47900 at 8.55% for 20 years. Compare that with a Rental value of Rs. 10,000-15,000 per month. Need I say more.

We can always rent it out

Now take a drive around New Town in Kolkata. How many of these high rise buildings have apartments with lights on. Guess the reason , the owners aren’t nocturnal beings, but its because they don’t live there and can’t find people to rent it out. With so many buyers having bought at the peak of the real estate market, the supply is huge and this will keep the rents subdued for a long time to come. And who’s there to guarantee that your tenant is going to treat it the way you do. In the adverse situation you may just be left with upkeep bills larger than your yearly rent.

A risk free investment

This is probably the biggest driver of the real estate as a good investment hypothesis. Google Supertech / Amrapali / Jaypee / Unitech etc. handover / delays / agitations and you would be convinced of how safe your investment would be. Also with the government turning off the tap on the steady flow of black money into the sector, via. black swan events like demonetization and stringent anti tax-evasion laws, the going can only get tough from here on.

Having read the facts above, do you still think that real estate is still a superior investment?? Do let us know your thoughts in the Comments section below.

Is ELSS Suitable after 55?

As one reaches middle age, the general tendency is to start becoming more and more risk averse. This risk averse behavior is well evident in approach of 55 plus people towards investments in equities either directly or through related financial instruments. The popular misconception is that these type of investments are not at all suitable for 55 plus and retired persons. This comes from the widespread notion that equity-backed investments (in any form) are unsuitable for this population because of the underlying volatility and uncertainty in equities. In reality, this misplaced concern, pushes many middle aged people towards making financial decisions, which at best yield average returns that barely able to cover for price inflation.

In general, when one takes inflation and tax liability into account, bank FDs and similar deposits actually generate negative returns that doesn’t even cover the inflation rate and in effect, you lose value. The purchasing power of your money reduces at about the same rate as its value increases in a fixed deposit. The thing to understand here is that, even after retirement, a part of your corpus earmarked to be used after a long-term, around five years or more, should be invested in equity to get inflation beating returns. This article is intended to throw some light on one such equity linked investment option available to Indians – Equity Linked Savings Schemes (ELSSs). And if you have a taxable income, there is no better alternative than an ELSS.

We at Purnaa believe that spreading the word around about such misplaced concerns would help the population at large towards making the right choice. While it’s true that equity related investments are volatile, we do not advocate shutting doors completely. Some of the clear cut advantages of investments in ELSS are listed below:

Cushion against Equity Market Volatility

ELSS is an equity linked investment with a lock in period of 3 years from the date of investment. This protects retail investors from short term market volatility and helps in compounding profits from equity markets.

Tax Savings as 80C Investment Option

Can be considered as an 80C investment option while filing tax returns, thereby helping in tax savings. In Budget 2018, government has levied a 10% long term capital gains tax on earnings from equities and related investments. This means ELSS no longer have the earlier benefits where by the gains were tax free. LTCG would now apply to gains from ELSS like other investments. This is definitely a dampener but we still think this mode of investment would clearly outperform other investment options available to Indians.

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Proven Outperformer

Popular Financial Website Value Research has done a research around how a SIP investment in an ELSS fund of an identical amount would have given an investor much higher returns compared to investments in PPF and Nifty. For the sake of parity, average returns of the ELSS category was considered. So, a Rs 1.5 lakh investment every year (making the total invested corpus Rs 30 lakhs) was considered, starting in 1999 and ending in 2018. The return on PPF came out to be Rs. 77.8 lakh, whilst an investment in an ELSS fund would’ve added up to a whopping Rs. 2.3 crore, almost 3 times higher! Whereas, simply investing in the index would have given a decent return of Rs. 1.5 crore, which is almost double the PPF returns. The post-tax returns on ELSS and index fund would be slightly lesser but they would still handsomely beat PPF returns.

For the original Value Research article please click here. This clearly points towards the fact that ELSS are a wonderful way of compounding one’s money over a period of time and therefore worth exploring.

Like all equity investments, the best way of investing in ELSS funds is through monthly SIPs throughout the year. However, a smaller number of evenly spaced investments are also suitable.

Wealth builds after 55 -10 ways

Half century is a key milestone in one’s life no matter how one looks at it. For those who have lived a balanced life saving for retirement, it’s a time to reflect if the savings accumulated till date would suffice for future needs. For those who feel left on the sidelines with not enough savings, it’s time to catch up to the extent possible. Though you can’t expect to match someone who started planning in their 30s, your cause is far from lost. Here are 10 things you can do

Realize time is not on your side

After 55, the most important thing that one needs to realize is that time is not on your side and making mistakes or being callous with money is simply not Ok when it comes to financial planning.

Focus on Health for self / family

After 55 while you may be young in my mind, law of nature dictates that you take care of your health. Illness in any form could throw you off course no matter how well you have planned your finances. Not only can it lead to you losing out on your wages, but also add to your expenses in the form of medical bills. Same applies for your dependents.

Focused Savings

To make up for lost time, act like a 55 -year-old and think like a 20-year-old. That means saving and protecting the money you have, as well as using technology, creating additional income streams, and cutting spending.

Adapt to technology

e-Payments via Credit Cards or e-Wallets can be rewarding in terms of cashbacks and other types of loyalty rewards. Moving to e-Papers from actually purchasing newspapers can help save money. Adapting to such new age technologies and many others can help save a lot of money which can be saved for future.

Track Spends using Technology

Use spend tracking apps to track and cut down on unwanted wasteful spend.

Leverage your skills

55 autumns later, you have all the experience on your side to leverage and monetize your skills. All it requires is a first step. Be open to such an idea and the same can turn out to be a wonderful avenue for the extra bucks that u need.

Evaluation of current liquid assets & investments

Evaluate your current liquid assets / investments and decide if you are getting the right returns. If required seek professional guidance to ensure you maximize your returns. Every penny spent on such consultancy would be rewarding.

Use your illiquid assets as resources

Liquid assets like extra rooms, houses, stores, vehicles, land etc. can be used as resources to earn extra cash in terms of rental income. In case you have gold savings, there are ways to earn interest on the same. Letting these assets lie idle is certainly not in your interest.

Choose your banks wisely

Choosing your bank wisely helps you earn that extra 2-3% in terms of interest income. As they say, every drop counts.

Strategic Debt Reduction

Strategic reduction of Debt is critical once one crosses 55. One should identify debt where interests are on the higher side and strike them off even at the cost of doing away with certain savings. E.g. if one has 100K in liquid assets earning a fixed interest income of 4% per year in savings account, one should use this 100K to pay off an equivalent debt incurring interest of 14%. This would mean a net savings of 10K per year on interest outgo, which can again be strategically invested.