CA S E S T U DY

Plan for childs edu, marriage from birth

Gajendra Kothari
lump sum :

on one occasion)
conveniently :
diversified :
inflation :

(a sum of money that is paid in one large amount

(when something is convenient)

(to become more varied or different)

(a general, continuous increase in prices)

big fat wedding :

dip :
saving)
resort :

(to spend part of a supply of money that you have been keeping or
(to do something that you do not want to do because

you cannot find any other way of achieving something)

The birth of a child is always a very special and joyful moment in any family.
Every parent wants to give the best of everything to the child be it a great
childhood, education, wedding or any other thing. So whenever a child is born,
parents usually try to invest some money in the childs name in an insurance policy, a
fixed deposit or gold. Many a times, they just invest some lump sum amount, thinking
it would help meet the childs future goal and then conveniently forget about it.
When my daughter Aditi was born, I followed a different approach. The first thing I
did was to increase my term insurance by Rs 1 crore. Now I was at peace of mind that
even if something were to happen to me, my family will get an additional Rs 1 crore
which can be effectively used for my daughters future and she can enjoy the same
benefits that I wish to provide her even if I am not around.
Additionally, I started saving for Aditis education and marriage so that I can easily
give
her
a
happy
and
financially
secure
future.
I started investing Rs 10,000 every month through an SIP in a diversified equity
oriented mutual fund. In her naming ceremony, she received Rs 1.2 lakh in cash as
gifts from our relatives. I invested the same into an existing fund.

Whenever there is any occasion in the family, she again receives cash gifts ranging
from Rs 5,000 to Rs 20,000. We simply invest these in the same fund.
Normally, people buy gold on Akshay Tritya, but I went and added Rs 20,000 in the
SIP as I believe equity is the best asset class to deliver inflation-beating returns. My
aim is to continue this investment for the next 25 years. If I continue the same, she
would receive around Rs 50 lakh when she is 18 for her graduation and approx Rs
1.32 crore for her post-graduation on her 23rd birthday, assuming a compounded
annual
return
of
15%.
As every Indian parent dreams of organising a big fat wedding for the daughter, so
do I. So I started another investm e n t o f R s 10,000 for her marriage wherein she
would receive approx Rs 7 crore for her marriage when she tur ns 30. And at that
time, will not have to dip into my retirement savings for her wedding, which
unfortunately most parents have to resort to because they dont plan in advance.
The writer is MD & CEO, Etica Wealth Management, Mumbai (This article was
originally published on June 18, 2013)

Youll Require Crores On Retiring

But dont panic as proper financial planning and disciplined investing will get you there

Partha Sinha | TNN

Pension is defined as a source of income for an individual from his/her past savings
when the person is no longer employed to earn a regular income. Planning for a
pension corpus is the same as retirement planning. Having a stressfree retired life
requires a good pension corpus, but building one is an exhaustive process that
should start as soon as one starts earning. A bit of planning and disciplined investing
are important to build a substantial pension corpus. However, the uncomforting part
is that even after building a large retirement fund, managing it after retirement
remains a continuing challenge because one does not know how long one would
need the corpus. The first question is why a substantial pension corpus is needed?

After you retire, suddenly one day your regular income will drop to zero. But your
expenses will not reduce by as much. In addition, as you grow older, the chances of
you needing medical help will rise, and thus the expenses under this head. Also,
inflation, which definitely and almost continuously makes nearly everything
expensive, will limit your spending power.
So, you need a pension plan that can help you beat inflation at a time when you are
not earning from regular employment. The first question is how much will you need
when you retire? A definite answer is impossible to guess because its all in the
future. But if you can answer a few questions, you can arrive at a reasonably good
number. So take out your financial planning note book to work on this.
First is to decide after how many years from now do you want to retire. Say its 25
years. The next step is to calculate how much money you will need every year after
your retirement. Remember, once you have retired, your expenses will come down
by a certain percentage from your current expenses.
To arrive at how much you would need during your retirement days, may be you
can calculate how much you would require if you
retired now, and then calculate with, say an 8% annual rate of inflation, what would
be the value of the same money 25 years hence. The numbers may make you
uncomfortable, but thats almost the reality.
If your current expenses are say about Rs 35,000 per month and if you retire now,
you would need about Rs 25,000 per month the annual expenses then add up to
Rs 3 lakh. So, to maintain at least the same level of lifestyle 25 years from now, at 8%
rate of inflation, you would need about Rs 20.5 lakh per year. Now, every year from
then on you would need a higher amount, again at the rate of 8%. So in the year 26,
you would need about Rs 22 lakh, in the year 27 about Rs 24 lakh, and so on. If you
live for 20 years after your retirement, you would need to spend a total of about Rs
9.4 crore.
The numbers might be numbing, but there is very little imagination here. Its all
basic mathematics involving some reasonable guesses. So if you have to face this
reality some day, it is better you start preparing for it now. Dont panic. There is a
solution. Here you have to calculate how much you need to save to reach this figure.
Suppose you start saving Rs 25,000 per month, at an expected rate of return of
10% per annum, then at the end of 25th year, that is when you retire, you will have a
corpus of about Rs 3.34 crore. But also consider the fact that over the years, as your

income rises you will probably be able to save even more per month. Say probably
five years from now you can save an additional Rs 10,000 per month. At the end of
the 20th year, you will have an additional Rs 77 lakh. And so on.
Now suppose you can manage to save Rs 25,000 per month over these 25 years,
but can manage a higher return of 20% per annum. You will be very comfortable
when you retire because then you will have a corpus of about Rs 21.6 crore.
Even if you feel that a 20% yearly return is on the higher side and you can manage
only about 15%, you will still have a corpus of Rs 8.2 crore when you retire. Hope
these figures now make you comfortable.
(This is an abridged
version of the article
originally published
on Nov 22, 2011)
NEXT WEEK
In the next edition, we will discuss systematic withdrawal plans (SWPs), and their
application.

Banks seek to cap free ATM use at 5 times/mth

Lenders Body Cites Rise In Security Costs

TIMES NEWS NETWORK

Mumbai: Account holders may end up paying the price of additional security at ATMs
in the form of fewer free transactions. The Indian Banks Association (IBA) has
proposed that the mandatory five free transactions that banks are required to allow
in a month include even the ones at the ATMs of an account-holders bank.
The proposal comes in the wake of higher charges that banks foresee as they have
been directed to provide guards at every ATM and also have electronic surveillance
in the form of CCTVs. The instructions have come from state governments in the
wake of a brutal attack at an unguarded ATM kiosk in Bangalore last year.
IBA has also supported an increase in charges that banks pay each other when
their customers use third-party ATMs from Rs 15 to Rs 18. At present, most banks do
not charge account holders if they use the banks own ATMs. In addition, RBI norms
require every bank to allow its customers access to third-party ATMs five times a
month without any charge, subject to a maximum withdrawal of Rs 10,000. Some
banks provide their customers more than the mandated number of free transactions
but this varies from bank to bank.
Addressing newspersons, IBA chief executive M V Tanksale said that the increase
will not affect most account holders since it allows more than one transaction per
week. For balance enquiry, SMS is a much more convenient option, said Tanksale,
adding that reducing the number of free transactions would ensure there is no
overutilization of the ATM network.
According to Tanksale, the ATM network of banks is currently around 1.4 lakh and
is expected to increase to around 2 lakh in six months. The viability of this network
depends on the migration of transactions from branches to ATMs, said Tanksale. He
added that given the size of the network, any increase in costs would translate into
an annual increase in cost of thousands of crores.
With ATM networks seeing explosive growth, the RBI has been taking measures to
ensure that all constituents are covered. The central bank has said that a percentage
of all new installations should be disabled friendly. IBA has designed a logo to
highlight ATMs that are accessible to the visually challenged. This way the public can
direct the visually challenged to ATMs that they can use, said Tanksale.
The other problem is that with the sudden spike in installations in the last one

year, the average transactions has dropped sharply. With the government proposing
to transfer subsidies and other benefits directly to individual accounts, banks are
expecting a surge in transactions.
In the early days of shared payment network, banks charged anywhere between
Rs 20 to Rs 60 for use of third-party ATMs. Four years ago, RBI directed banks to
waive all charges, but later relented and allowed banks to charge beyond five
transactions a month.
PAY MORE FOR YOUR MONEY?
IBA wants to increase charges that banks pay each other when their customers use
third-party ATMs from Rs 15 to Rs 18
It says the increase will not affect most account holders since it allows more than
one transaction per week
The lenders body feels that reducing the number of free transactions will ensure
there is no overutilization of the ATM network Banks can take a call on insurance
biz: IBA
Mumbai: The Indian Banks Association (IBA) has taken a more liberal view of the
finance ministrys diktat asking banks to become insurance brokers. IBA feels that
finance ministrys letter leaves it to banks to choose to become brokers and sell
policies of multiple insurers or continue as corporate agents for one insurance
company.
The association, in its recent managing committee meeting, discussed a directive
from the finance ministry to public sector banks (PSBs). The finance ministry had
asked PSBs to implement the spirit of the Budget announcement (of banks becoming
insurance brokers) within the framework of guidelines issued by IRDA and RBI. The
letter also said that PSBs may join the insurance broking business in order to increase
insurance penetration and avoid mis-selling of insurance products.
Briefing newspersons about developments at IBA, the associations CEO M V
Tanksale said, Since every bank is in a different position with respect to insurance
distribution, we felt that the IBA cannot take a single view on this and it is the
individual banks which will have to take a view on this at their board level.
He also said that the association has sought clarification on the ceiling of 25% on
the extent of business that a bank can do with one insurance company. It has also
asked whether the current cap of 50% on the extent of business a broker can
generate from a single customer will continue. According to Tanksale, banks that

choose to become brokers would also require some leeway in transiting from a
corporate agent to an insurance broker and would have to put arrangements in place
to service existing customers.
Privately, PSBs have expressed concern over the finance ministry diktat. Their
biggest worry is the exclusive distribution agreements they have entered into with
their joint venture partners against which they have received upfront payments
running into hundreds of crores.
The second concern is that the investment made in training employees to sell
insurance plans would go to waste as the training syllabus for those engaged in
broking is completely different from the training for a tied agent. Since the industry
was opened up, insurance companies have invested crores in training tens of
thousands of bank employees to sell insurance as a corporate agent.
The third issue raised by banks is operational. Banks say that they have invested in
technology to embed insurance service platforms in their core banking solutions.
These have been done for products of the group company. This would have to be
undone as broking licence requires banks to make available products of all insurance
companies.
Most of the public sector banks have an insurance company in the group, many in
the form of a three-way joint venture. These include SBI (SBI Life), Bank of India and
Union Bank (Star Union Dai-ichi), Bank of Baroda and Andhra Bank (India First Life
Insurance), Punjab National Bank (PNB Metlife), Canara and Oriental Bank (Canara
HSBC OBC Life), IDBI Bank and Federal Bank (IDBI Federal Life) and Allahabad Bank,
Indian Overseas Bank & Karnataka Bank (Universal Sompo).
CHANGING ACCOUNTS
Bank boards have to decide whether they can take up
insurance broking
Banks are also seeking clarity on broking norms which place 25% cap on one
insurers business Employees have been offered 5% hike in take-home pay under
wage negotiations
Those who retired before 1986 will get a 500 hike per month in ex-gratia pension

SEC O N D O P I N I O N
Get the job done

More than corruption, its gross inefficiency thats Indias biggest problem

Jug Suraiya
Driving back to Delhi on NH 24, we came to a fork in the road. There was no
signboard to indicate which was the route to Delhi, or where the other road went.
Eventually we got directions from a passing bullock cart (yes, a bullock cart on a socalled National Highway).
The highway cost thousands of crores to build. Much of that money must have
gone by way of graft to a hierarchy of netas, babus, contractors and middlemen.
Having denuded the public coffers of all that money, no one involved in the project
thought of spending a few hundred rupees in putting up a signboard which would
help travellers get to their destinations without help from passing bullock carts.
We all decry corruption as being the biggest obstacle to national progress.
Certainly corruption, at all levels of our polity, is a heavy burden on the country. But
the final straw that breaks the Indian elephants back is not graft but sheer
inefficiency a seemingly innate inability to get the job done and get it done right.
Well build a multi-crore highway, and then fail to put adequate signage on it so
that travellers can find their way. We can spend thousands of crores many of which
were siphoned away on an extravaganza like the Commonwealth Games, and then
become the jeering stock of the world because of filthy toilets. For almost70 years
weve spent many fortunes on supposed subsidies for the poor which have enriched
rentseekers while entrenching poverty rather than eradicating it.
Corruption is only part of the cause of our failures on all these and other fronts.
The other, if not major, reason for our being unable to get things done is our genius
for bungling, for getting things wrong instead of getting them right.
Other societies are as corrupt as ours. Thailand and China being just two examples.
Currently, the Thai government is facing massive unrest because of its alleged
chronic corruption. But the average Thai citizen is better off than the average Indian.
In the early 1970s, the Thai baht was worth about 50 paise Indian; today the baht is
worth about two rupees. Corrupt Thailand has gone forward, corrupt India has gone
backward.
There is large-scale corruption in China. Recently, one of the highest political
luminaries, Bo Xilai, was tried and sentenced to life for corrupt practices (will India
ever witness a neta, or any other so-called high-up, being executed for a similar

offence?). Despite all its graft and corruption, which is equal to if not greater than
Indias, China has far outstripped us in material progress.
India has a lesson to learn from China and Thailand: be corrupt if you must, but
with it be efficient; take the money, but deliver the goods. Indias biggest bane is not
corruption, it is not that people in power steal money; it is that those who steal our
money seem incapable of accomplishing anything from building a userfriendly
highway to eliminating poverty through subsidies and other schemes.
Arvind Kejriwals AAP has risen like a desi avatar of St George to battle the dragon
of corruption. But it might have an even bigger ogre to combat in the form of
systemic ineptitude which just cant make things work. Thats the real job cut out for
AAP. Will it be able to get the job done?