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ULIPs are not for senior citizens — Here’s how to pick the right investments to secure the golden years of your life

<ul><li><keyword id="76579" type="General" weightage="20" keywordseo="ppf" source="Orion">PPF</keyword> is a popular choice for retail investors seeking long-term savings, especially for retirement. </li><li>One can increase their <keyword id="45027" type="General" weightage="20" keywordseo="epf" source="Orion">EPF</keyword> contribution for their long term debt portfolio meant exclusively for retirement goals. </li><li>With <keyword id="6397939" type="General" weightage="20" keywordseo="interest" source="Orion">interest</keyword> rates peaking out, one may explore gilt funds for their medium to long term debt portfolio. </li></ul>Asset allocation is one of the chief tenets of investment. Basically, it means that your investments are spread across different asset classes, majorly equity and debt. What the ratio should be would depend on a lot of factors like age, risk appetite and so on, and would change with time. When we think of equities we think of stock or mutual funds. Here, we will take a look at how you should invest the debt portion of your portfolio in terms of the different options you have. <cmsannotation type="cmsannotation" annotationid="Public provident fund (PPF)" comment="Subhead" text="Public provident fund (PPF)">Public provident fund (PPF)</cmsannotation> Public Provident Fund (PPF) is an excellent choice for retail investors seeking long-term savings, especially for retirement. It offers tax benefits, with investments up to ₹1.5 lakh being tax-exempt per year under section 80C. However, other payments like life insurance premiums, EPF and home loan principal repayment also come under 80C. Hence, it is important to understand how much tax benefits one will get by investing in PPF and invest accordingly. <cmsannotation type="cmsannotation" annotationid="Voluntary provident fund (VPF)" comment="Subhead" text="Voluntary provident fund (VPF)">Voluntary provident fund (VPF)</cmsannotation> VPF refers to the additional contribution an employee can make to employee provident fund (EPF) over and above the mandatory contribution. The interest earned on an employee's contributions to EPF and VPF is exempt from taxes for contributions of up to ₹2.5 lakh per financial year. “So one can optimise investment up to the tax advantage and not beyond that,” says Mukesh Kochar, national head of Wealth, AUM Capital, a wealth management firm. “One can increase their EPF contribution for their long term debt portfolio meant exclusively for retirement or goals after retirement. On a post-tax basis with sovereign guarantee, EPF still remains the best debt investment option for a long term portfolio,” says Abhishek Kumar, founder and chief<a href="https://business.outlookindia.com/invest/investment"> </a>investment advisor at SahajMoney, a financial planning firm. This works best for someone who has a small salary as one can contribute a large additional amount and stay within the ₹2.5 limit. One should thus try to allocate a large portion of their long term debt portfolio towards EPF and then PPF. <cmsannotation type="cmsannotation" annotationid="Debt funds" comment="Subhead" text="Debt funds"><keyword id="35474" type="General" weightage="20" keywordseo="debt-funds" source="Orion">Debt funds</keyword></cmsannotation> Debt funds lost some of their appeal after the indexation benefits were removed but in the current context, it makes sense to invest in debt funds. “This seems to be the best time to invest in debt instruments as we believe that the interest rate cycle has peaked out. Reversal of rate may take some time but it has peaked out and there is a great opportunity to capture capital gain whenever the interest rate reverses,” says Kochar. Agres Nehal Mota, co-founder CEO of Finnovate Financial Services, “After exhausting the above options I would opt for debt mutual funds with a little longer term maturity. Since the interest rate has peaked, bonds with a little longer term duration will have more capital appreciation.” “So they can explore gilt funds for their medium to long term debt portfolio for the same. For a short term debt portfolio, overnight and liquid funds are better options,” says Kumar. Also, capital gains on debt funds are taxed only in the year of redemption. In contrast to that, interest on bank fixed deposits are taxed every year. So one can defer their tax incidence by investing in debt funds. <cmsannotation type="cmsannotation" annotationid="Sukanya Samriddhi Yojana" comment="Subhead" text="Sukanya Samriddhi Yojana">Sukanya Samriddhi Yojana</cmsannotation> If there is a girl child Sukanya Samriddhi Yojana (SSY) is also a good option. “SSY has an exempt exempt exempt tax structure. But I would not recommend this for tax savings but because the daughter will get a lump sum amount at 21,” says Mota. To sum it up, when you're building your debt portfolio, the key is to mix different types of debts, be careful with risks, and also keep in mind the tax aspect. This way, you can secure your financial future.

Explained: How to build a debt portfolio for the long term

<ul><li>Another related question is whether one opt for a daily or weekly <keyword id="35471" type="General" weightage="20" keywordseo="sip" source="Orion">SIP</keyword> to maximize returns </li><li>Most investors wonder if one can enhance returns on a SIP in <keyword id="6357979" type="General" weightage="20" keywordseo="mutual-funds" source="Orion">mutual funds</keyword> </li><li>By investing in SIPs, investors can take advantage of the power of compounding, say experts </li></ul> Systematic Investment Plans (SIP) are one of the simplest because they allow small ticket monthly allocations to preferred asset classes. Since these investments are regular they are best suited to even out market volatility, especially in case of investments in equity mutual funds. One question that most investors ask is whether one can enhance returns on a SIP in mutual funds? One decision most of us have to make in SIPs is the date of the SIP. The million dollar question is, does the date of the SIP really make a difference? Can you earn a higher return on SIPs by choosing the start of the month instead of the end of the month or vice versa? <cmsannotation type="cmsannotation" annotationid="The date of SIP does not matter" comment="subhead" text="The date of SIP does not matter">The date of SIP does not matter</cmsannotation> “In fact, the efficacy of SIPs lies in their ability to eliminate the need for precise market timing, as attempting to predict market lows can be challenging, if not impossible,” says Anand Dalmia, co-founder and Chief Business Officer at Fisdom, a direct mutual funds platform. A study of SIP returns on Sensex for different SIP dates over a 27-year period between September 1996 and March 2023, threw up interesting results. The date of SIP really did not matter. “The returns have been almost the same irrespective of the date you choose. In fact, the difference in returns between choosing the best date, and the worst date is 0.08%. In short, the date of the SIP does not matter,” says Nehal Mota, co-founder, Finnovate, a hybrid wealth tech platform. According to Dhirendra Kumar, CEO, Value Research India, even if there is a pattern that you get higher returns if you do your SIP on the first or the 15th of a month, there is absolutely no basis of why it should be true or why it will repeat in future. So that doesn't matter. He suggests that one should just choose a day which is convenient, when the money will be debited, and ensure that there is money in the account on that day. Says Arijit Sen, a SEBI-registered investment advisor and co-founder of Merry Mind, a financial advisory firm, “Some YouTube videos claim that if you invest on such and such dates every month, you can get the maximum returns from SIPs. But there is no basis to such claims.” <cmsannotation type="cmsannotation" annotationid="Do daily or weekly SIPs help maximize returns?" comment="subhead" text="Do daily or weekly SIPs help maximize returns?">Do daily or weekly SIPs help maximize returns?</cmsannotation> Would it make sense to do a weekly SIP or daily SIP instead of a monthly SIP? Will it result in better averaging? “We get back to the previous point of being indifferent to the date of SIP. When the date of SIP does not matter, the number of SIP iterations also would not matter. Frequent SIPs can be an administrative nightmare, so one SIP a month is good enough,” says Mota. The frequency at which an SIP should be conducted depends primarily on the investment horizon and expected volatility. To optimize the benefits of an SIP, it is crucial to align its frequency with the specific requirements of each investor's financial goals and circumstances. “For long-term investment horizons, a monthly SIP can be a suitable choice. This duration allows for cost averaging across longer market cycles, enabling investors to benefit from the potential ups and downs of the market over an extended period. By investing monthly, investors can take advantage of the power of compounding and enjoy the benefits of accumulating wealth gradually,” says Dalmia. He says that another factor to consider when determining the SIP frequency could be personal cash flow situations. Investors who have visibility and regularity in their daily or weekly cash flows may find it beneficial to commit to a similar frequency for their SIPs. This alignment ensures a smoother integration of investments into their financial planning, and helps maintain consistency in their investment contributions. On the other hand, individuals who receive monthly paychecks often find it convenient to opt for monthly SIPs. Kumar says that it is important that one becomes a regular investor, because only then the magic of compounding happens. Instead of worrying about the periodicity of SIP, focus on selecting the right mutual fund, after considering your risk tolerance. <cmsannotation type="cmsannotation" annotationid="The mantra for maximizing your SIP returns" comment="subhead" text="The mantra for maximizing your SIP returns">The mantra for maximizing your SIP returns</cmsannotation> So, we have seen that the date of the SIP, or the frequency of the SIPs do not make much difference to the returns. But there are four other factors that form the pillar of a successful SIP investment. First is discipline. “Once you start a SIP, don’t give up on it till the milestone for the goal is reached. Here, don’t wait for income to increase to generate savings. You must target monthly savings and then build your expenses around that. That is the way to make SIPs workable in practice,” says Mota. The second mantra pertains to the dominance of time over timing. The specific day chosen for the SIP is not significant; however, the duration of the SIP is crucial. Even if the regular investments are smaller, opting for a longer SIP period can result in a significantly higher accumulation of wealth within the same mutual fund. The third mantra is to believe in the power of equities, or equity funds to generate long term positive returns. You can never create wealth by doing SIP for a prolonged period on liquid funds or arbitrage funds. The beauty of equity funds is that over longer periods of time, the risk of negative returns almost diminishes to zero. The final mantra of SIP is enhancement. “Don’t get stuck to the SIP amount you started with. Over time, your income is bound to increase so your saving power must also grow proportionately. That is only possible, either with a stepped up SIP or by plugging additional SIPs to accommodate higher savings,” says Mota. SIPs can thus be a great way to meet your future goals, and staying disciplined is key.

What is the best date to set for your SIPs – Beginning, end, or middle of the month?

ULIPs are not for senior citizens: Here’s how to choose the right investments to secure the golden years of your life

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ULIPs are not for senior citizens — Here’s how to pick the right investments to secure the golden years of your life

Anagh Pal

Explained: How to build a debt portfolio for the long term

Anagh Pal

What is the best date to set for your SIPs – Beginning, end, or middle of the month?

Anagh Pal

ULIPs are not for senior citizens: Here’s how to choose the right investments to secure the golden years of your life

Anagh Pal

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