Understanding the NPS: eligibility, enrollment process and commonly asked questions
Eligibility Criteria for National Pension System (NPS)
The National Pension Scheme was introduced in January 2004 as a replacement for government pensions offered to government employees. However, in 2009, it became accessible to individuals planning for their retirement. Today, even private company employees and self-employed individuals can participate in NPS.
The NPS is managed by the PFRDA (Pension Fund Regulatory and Development Authority). It stands out as one of the most cost-effective pension schemes worldwide, providing an economical option for retirement planning. NPS offers flexibility to subscribers, allowing them to choose their pension fund and asset allocation.
Another feature of the NPS is its portability, enabling the seamless transfer of NPS accounts between different occupations and geographical locations. NPS also offers multiple tax benefits to account holders.
NPS promotes transparency, granting subscribers 24/7 online access to their accounts, along with the requirement for public disclosures, ensuring a clear and open investment environment.
Eligibility to invest in NPS
To invest in an NPS, you must meet specific eligibility criteria, including age and documentation. If you plan to invest in NPS on your own, the eligibility requirements are as follows:
- You should be above 18 years old but below 70 at the time of submitting your NPS application.
- You can be a resident Indian or an NRI.
- You need to provide valid KYC documents such as Aadhaar, PAN, etc., along with your application.
- Hindu Undivided Families (HUFs), Persons of Indian Origin (PIOs), and Overseas Citizens of India cannot subscribe to NPS.
Eligibility criteria for NRIs to invest in NPS
If you’re an NRI (Non-Resident Indian) interested in investing in the NPS account, you must meet specific eligibility criteria. To participate in NPS as an NRI, you need to fulfil the following conditions:
- Your age should fall within the bracket of 18 to 70 years and you must complete your KYC requirements.
- Holding a valid passport is mandatory.
- You should maintain a valid bank account, either in the form of a non-resident external account or a non-resident ordinary account.
- Contributions made by an NRI are subject to regulatory requirements as prescribed by RBI and the evolving mandates of FEMA.
- It’s important to note that if you ever cease to hold Indian citizenship as an NRI, your NPS account will become inactive.
Frequently Asked Questions (FAQs)
How to enrol in NPS?
Joining the NPS involves opening an NPS account through entities known as POPs (Point of Presence). Most banks, both public and private, serve as POPs, along with several financial institutions.
What are the documents required for NPS account opening?
When opening an NPS account, you must complete the subscriber registration form and provide proof of identity, address, and date of birth to the chosen POP. Download the Floatr app and complete your registration digitally within 10 minutes.
What is a PRAN?
Upon enrollment, every NPS subscriber is issued a unique 12-digit number known as the PRAN(Permanent Retirement Account Number).
What are the differences between Tier-I and Tier-II accounts?
NPS offers two types of accounts: Tier-I (mandatory) and Tier-II (voluntary). The primary distinction between them lies in the withdrawal options. Tier-I accounts have withdrawal restrictions, even post-retirement, while Tier-II accounts offer more flexibility, allowing subscribers to withdraw their entire corpus if desired. No tax exemptions are available on investments done in Tier-2 and gains are also taxable.
What is the minimum amount you need to contribute for NPS?
To maintain an active Tier-I account, you must contribute a minimum of Rs 1,000 annually. Failure to meet this requirement results in the account being frozen, with reactivation requiring the minimum contribution and a penalty of Rs 100.
Does the government also make contributions to the NPS account?
The government does not make contributions to individual NPS accounts.
Who can manage the pension funds?
PFRDA-registered pension fund managers manage the investments in NPS.
What are the types of investment choices in NPS?
NPS offers two investment choices:
Active choice: Investors have the freedom to allocate their funds among various assets and change whenever they prefer.
Auto choice: This option automatically adjusts investments based on the subscriber’s age. Portfolio rebalancing is done every year automatically.
What are the tax benefits offered under NPS?
NPS provides tax benefits to individuals is under three different IT sections-
- u/s 80CCD(1): Investment of up to ₹1.50 Lakhs exemption on self contribution. This is part of overall ₹1.50L limit u/s 80C
- u/s 80CCD(1B): This allows additional exemption of ₹50,000 on self contribution
- u/s 80CCD(2): This exemption is available for salaried professionals only. Employer contribution to NPS up to 10% of one’s basic salary is exempted under this section. There is an upper cap of ₹7.50 Lakhs annual exemption where Employer PF + Employer NPS should be within ₹7.50 Lakhs.
What are the withdrawal rules and processes under NPS?
NPS is primarily a pension product meant to stay invested until retirement. At the age of 60, you must use at least 40% of the corpus to purchase an annuity from a PFRDA-listed insurance company. You have the option to withdraw 60% of the corpus tax-free.
NPS also allows you to take an early retirement before the age of 60. In this case, your account should be atleast 5 years old. You can withdraw 20% of your corpus and purchase an annuity with the balance 80%.
To withdraw money from NPS, you need to submit a withdrawal application to the POP with relevant documents. The POP authenticates the documents and forwards them to the Central record-keeping agency and NSDL. CRA registers your claim, providing an application form and document details. After completing the necessary steps, CRA processes the application and settles the account.
What are the documents required for withdrawal?
When submitting withdrawal forms, include the following documents:
- Original PRAN card
- Attested copies of proof of identity and address
- A cancelled cheque
What is Annuity?
An annuity provides regular income, payable at specified intervals, for a chosen period. In NPS, at least 40% of the corpus must be used to purchase an annuity from an ASP (Annuity Service Provide).
In conclusion, the NPS stands as a robust and government-regulated solution for retirement planning. Whether you are a resident Indian or an NRI, NPS offers a secure pathway to a stress-free retirement.
Floatr makes your retirement journey simple, all you have to do is download the Floatr app, complete your KYC, and begin your retirement plan within seconds. The app also offers an amazing feature where you can set your financial goals and keep track of where you stand today.
So, take the first step towards your retirement goal by downloading the Floatr app today!
Junior Wealth – Mutual Fund Investment for Child
Junior Wealth - Mutual Fund Investment for Child
Having children is one of life’s greatest blessings. While they bring immense joy to parents, they must plan and secure their children’s future.
Raising a child in metropolitan cities is one of the most expensive undertakings. Schooling alone can cost up to Rs. 30 lakhs, and college expenses can exceed Rs. 1 crore. With such high costs, if parents don’t plan their children’s finances, they are risking their children’s future well-being.
Similar to our Freedom 45 mutual fund portfolio, which aims to achieve financial independence for investors by the age of 45, Floatr has introduced another portfolio called “Junior Wealth.” It helps you build a fund for your children’s financial needs when they enter college, using an aggressive investment strategy for long-term growth.
In this blog, let us dive deep into the benefits of the premier mutual fund basket – “Junior Wealth” designed for securing your children’s future offered by Floatr.
Features of Junior Wealth
Junior wealth, specifically designed for planning your child’s future has the following features:
Preferred Tenure (Above 5 years): Junior Wealth encourages long-term financial planning for your child’s future needs. This extended horizon allows for potential growth and compounding of investments, which can be crucial for achieving significant financial goals such as education or marriage expenses.
Risk Category(moderate): The moderate risk category indicates that Junior Wealth strikes a balance between risk and potential returns. It acknowledges that while you want to grow your child’s wealth, you also want to ensure stability.
Minimum One-Time Investment (INR 25,000): To get started with Junior Wealth, you can make a minimum one-time investment of INR 25,000.
Minimum SIP (INR 2,000): Junior Wealth also offers the flexibility of making regular investments through SIPs, with a minimum monthly contribution of INR 2,000. SIPs allow you to invest smaller amounts at regular intervals, making it easier to build a significant corpus over time without straining your finances.
Lock-In Period (Not Applicable): Unlike other financial products that impose lock-in periods, Junior Wealth does not have such restrictions. You can access your funds whenever you need them without penalties. This flexibility can be beneficial, especially in the event of unforeseen circumstances where you might require the funds for your child’s immediate needs.
Junior wealth comprises the following mutual funds and follows a moderate risk strategy:
HDFC Balanced Advantage Fund – Regular Plan-Growth
This fund offers a balanced approach, combining equity and debt investments to provide stability and growth potential. 25% of your investments are allocated here. This scheme has earned a return of 13.17% over 10 years.
ICICI Prudential Small Cap Fund – Growth
Small-cap stocks have the potential for high growth. 20% of your investments are allocated to this fund and it has earned a return of 18.75% over the past 10 years.
SBI Equity Savings Fund – Regular – Growth
This fund offers a unique blend of equity, arbitrage, and debt investments, providing stability and potential for higher returns. It constitutes 30% of your portfolio, adding diversification and risk management and has earned a return of 8.85% since its inception in 2015.
Nippon India Large Cap Fund Growth
Large-cap stocks provide stability and steady growth. It comprises the remaining 25% of the portfolio and has returned 16.98% returns over 10 years.
5 things to keep in mind to plan your child's future
Planning for your child’s future is a crucial step that can prepare you for various stages of life, including their education, higher education, healthcare, and even their wedding.
To ensure a financially secure future for your child, you can follow these five principles and get started:
Start investing early
Many parents delay saving and investing for their children until they reach primary school age. However, waiting too long may jeopardise your child’s access to quality higher education, which is becoming very expensive. By initiating investments as early as your child’s birth, you position yourself better to invest in moderately risky instruments that offer better long-term returns.
Instead of relying only on low-risk fixed-income securities, explore various investment avenues that can provide higher returns over the long term. Consider beginning with a SIP to benefit from compounding. Remember to periodically review your child’s investment portfolio for potential rebalancing, aligning your strategies with market conditions and your goals.
Align investments with short-term and long-term goals
Categorise your child’s financial goals into short-term and long-term objectives. Short-term goals may include expenses that must be covered within the next 1-2 years, such as school fees and extracurricular activities.
Long-term goals encompass expenses like university admission and fees, overseas education, and your child’s wedding.
For long-term goals, consider equity investments, which offer moderate risk with the potential for good returns. Reserve surplus funds for short-term goals by investing in liquid assets like Fixed Deposits (FDs) or less risky debt funds.
Secure your child’s health and life
Complete financial planning includes safeguarding your children through comprehensive health and life insurance plans. When selecting insurance plans, carefully review the terms and conditions to understand their impact fully.
When purchasing life insurance for your family, go for a premium waiver plan. This type of plan provides financial support to your family in case of any unfortunate circumstances.
Consider partial withdrawal investment plans
Investing in your child’s future from an early stage often involves long-term commitments, ranging from 15 to 20 years. Many instruments that offer both security and good returns come with extended lock-in periods.
Look for investment options that allow for partial withdrawals to fulfil your child’s future needs. Choosing instruments that are flexible during emergencies can prevent regrets down the road.
Appoint a nominee
Appointing a nominee for all the investments you make for your child is a responsible step that should not be overlooked. Neglecting to select a nominee can lead to complications in future. Therefore, carefully consider all possibilities and nominate a reliable family member as the nominee for your child’s investments.
Bottomline
Being an investor goes beyond simply initiating an investment. It involves the ongoing responsibility of regularly reviewing and adapting your goals to align with your aspirations, market dynamics, and your evolving financial requirements.
This is where Floatr steps in to provide a comprehensive solution for managing your finances. It serves as an all-in-one platform for your financial planning needs. Within the app, you’ll find predefined goals like building a rainy day fund and preparing for retirement, making it effortless to strategise and work towards these objectives.
You also have the flexibility to establish personalised financial goals, kickstarting your savings and investment endeavours directly through the app. Floatr also offers tools for budgeting, expense tracking, and convenient bill payments to further streamline your financial management.
In addition to these financial management features, Floatr also provides pre-selected mutual fund portfolios like Junior Wealth, as we covered in this blog. These portfolios are meticulously crafted by industry experts, instilling confidence in Floatr as a reliable steward of your finances.
Navigating the world of equity mutual funds in India
Navigating the world of equity mutual funds in India
Have you ever heard the phrase “Mutual funds sahi hai” while scrolling through your phone but never really found an answer? Do thoughts of money and investments leave you feeling overwhelmed, causing you to procrastinate on dealing with them?
If so, you’re not alone – this happens to many people.
However, it’s essential to take a step back and address these concerns. The longer you delay, the more challenging it can become to manage your finances effectively. So, don’t fret! Take a moment to relax and explore this straightforward guide, which will introduce you to the world of mutual funds and provide you with essential information to kickstart your investment journey.
What Are Mutual Funds?
A mutual fund is a financial instrument open to all investors. When you invest in a mutual fund, you entrust your capital to a mutual fund manager who, in turn, allocates these pooled funds from numerous individuals like yourself. These skilled fund managers curate a diversified portfolio of stocks, bonds, or other assets. This approach provides investors with a diverse range of investment opportunities and helps expand their investment portfolio, all without the need to individually purchase stocks or bonds.
When you invest in a mutual fund, you’re buying shares of that fund. The worth of these shares goes up or down based on how well the fund’s investments are doing. Professionals who are experts in managing funds make the investment decisions for you and other investors in the fund. They’re the ones in charge of making your money grow.
Types Of Mutual Funds?
There are approximately 8,000 mutual funds available, spanning around 35 different categories. Let’s focus on the most common ones, categorised by where fund managers allocate their investments.
Equity funds
Invests in stocks & offers potential for high returns, but comes with a higher risk. Equity funds appeal to investors aiming for long-term capital growth and are open to taking on a higher level of risk.
Debt funds
Invests in fixed-income securities, provide stability and regular income with lower risk. Bond funds attract those seeking consistent income while being comfortable with a lower level of risk.
Money market funds
Invests in short-term money market securities, suitable for lower-risk investments. Money market funds are favoured by investors seeking a safe and short-term place to keep their money secure.
Hybrid funds
Blend stocks and bonds for a balanced risk-return profile. Hybrid funds cater to well-balanced investors who desire a blend of growth and stability in their portfolio. These funds combine both equities and debt instruments, making them suitable for conservative investors seeking a more moderate risk profile compared to pure equity funds.
Index funds
The primary goal of Index funds is to mirror the performance of a particular market index, like the Nifty 50 or Sensex. Index funds are a popular choice for novice investors looking for a straightforward investment option that offers broad exposure to the market. They are also favoured by those who have faith in the long-term growth of an index itself, rather than relying on a fund manager’s strategy.
Invest in mutual funds effortlessly with the FloatR app
Everyone is talking about creating an SIP (Systematic Investment Plan) and buying a mutual fund. But what is an SIP? Is it a mutual fund scheme or a method of investment?
SIP stands for “Systematic Investment Plan.” In the simplest terms, it’s a way for you to regularly invest a fixed amount of money at regular intervals, typically each month, into a mutual fund or investment scheme. It’s like setting up a savings plan where you contribute a fixed amount consistently over time to help grow your investments gradually.
FloatR streamlines your mutual fund investments. Here are the essential steps to kickstart your journey:
Step 1: Begin with risk profiling and budgeting
First and foremost, undergo risk profiling to understand your risk tolerance. Determine your monthly expenses and savings capacity based on your income. For instance, if you earn Rs. 50,000 per month, assess how much you can save. If you plan to save Rs. 20,000 monthly, allocate these funds to specific financial goals like retirement or building an emergency fund.
Step 2: Allocate your assets
After risk profiling, move on to asset allocation. Distribute your investment capital across various asset classes. The FloatR app offers a selection of mutual fund categories to assist you in this process.
Step 3: Identify and choose your mutual fund
In the third step, identify mutual funds that align with your chosen asset classes. Evaluate these funds by considering their historical performance and investment objectives, enabling you to make well-informed comparisons.
Select the particular mutual fund scheme that suits your goals and risk tolerance. Initiate the application process with a single click. Whether you prefer setting up a Systematic Investment Plan (SIP) or making a one-time investment, FloatR accommodates your preferences.
Step 4: Diversify and stay informed
To optimise your investment outcomes and potential returns, diversify your investments across various funds. Regularly monitor the performance of your investments using the FloatR app and track your achievements.
Summing up
So basically, by understanding the basics of mutual funds and the various types available, you can access a diversified portfolio without needing to purchase individual stocks or bonds. The benefits of mutual fund investments include diversification, professional management, accessibility, and the ability to align your investments with your individual goals and risk tolerance.
Remember, when you evaluate mutual funds, you must consider key factors such as fund performance and the track record of the fund manager. While past performance is important, it should not be the sole factor in your decision-making process. You should also evaluate risk-adjusted returns, the fund manager’s experience and investment philosophy, and understand how fees can impact long-term returns.
We trust that you have acquired valuable insights into mutual funds, and the exciting news is that you now have the ideal platform to embark on your financial journey, namely FloatR. With user-friendly tools like goal setting, you can effectively oversee your finances, invest in appropriate funds, and maintain a clear track record of your investments over time.
Ultimately, by carefully evaluating these factors and aligning your investment choices with your personal goals and risk tolerance, you can build a well-rounded mutual fund portfolio that contributes to your financial well-being.
Retirement planning in India
Retirement planning in India: start early, retire happily
Have you started the process of creating your retirement fund? If you haven’t, your reasons might include feeling too young, wanting to enjoy your current earnings, or lacking knowledge about investments. Now, the follow-up question is, “At what age do you envision retiring?” and the frequently heard response is often “45.”
In this blog, we will tackle your reservations regarding retirement planning and lay out a roadmap that you can adhere to in order to establish a solid retirement corpus.
Retirement often doesn’t receive the attention it deserves among young individuals, primarily because it lies at least two to three decades in the future. However, it is crucial to understand why having a retirement plan is imperative. Here are three compelling reasons:
- Longer Life Expectancy: People are now enjoying extended lifespans, necessitating the need to plan for a more extended post-retirement life, which can stretch well into the age of 85 or beyond.
- Inflation: Inflation, the gradual increase in the overall price level of goods and services, is a significant factor to consider. This means that what costs Rs.100 today could potentially cost Rs.1000 or more after 40 years assuming the inflation rate to be 6%, eroding the purchasing power of your savings.
- Absence of Government-Sponsored Social Security: Unlike some countries, India lacks a robust government-sponsored social security system that adequately supports the elderly population. Relying solely on such systems may not provide the financial security needed during retirement.
In light of these factors, it becomes clear that planning for retirement is not only wise but also essential to secure a comfortable and financially stable future.
Why should you start early?
Before we delve into the retirement roadmap, let’s examine some scenarios that highlight the importance of initiating your retirement savings early.
Consider scenario 1: Person A starts saving ₹10,000 per month at age 25, while Person B begins saving the same amount at age 35. Assuming both plan to retire at the age of 60, the retirement corpus of Person A accumulates to a substantial ₹5.8 crores, whereas Person B manages only ₹1.8 crores. This demonstrates a significant 70% difference in the accumulated savings between the two.
Now, let’s explore another scenario: Person A commences investing at age 25 and ceases at 40, while Person B starts at 35 and continues until age 60. Person A has invested for 15 years, whereas Person B has committed 25 years to their investments. At age 60, Person A will possess a retirement corpus of ₹4.8 crores, whereas Person B will have accumulated just ₹1.8 crores. This contrast can be attributed to the power of compounding.
As you can see above, starting early has its advantages. If you have age on your side, you can start your retirement planning early and grow your wealth through compounding.
Building a retirement plan
Retirement planning revolves around two main aspects i.e., how much retirement corpus you will need when you retire and how much money you need to save every month to retire comfortably.
Let us look at the steps you need to take to plan your retirement:
Step 1: Set retirement goals
Start by defining your retirement goals. Determine when you want to retire, the lifestyle you aim for during retirement, and expected expenses, including housing, healthcare, and leisure activities.
Step 2: Estimate future expenses
Calculate future expenses, considering essentials like housing and healthcare, along with discretionary spending. Account for inflation, typically around 6-7% annually.
Step 3: Gauge lifespan
Estimate your expected lifespan based on family history, health, and lifestyle, planning for a longer life to safeguard against outliving your savings.
Step 4: Include income sources
Consider other income sources during retirement, such as pensions or rental income. Deduct these from your estimated expenses to determine your needed retirement corpus.
Step 5: Utilise retirement tools
Use online calculators or seek financial advice to calculate your retirement corpus, inputting your goals, expected expenses, and inflation rates. You can also use this sheet you calculate your retirement corpus.
Step 6: Factor in investments
Account for investment returns in your corpus calculation. Decide on investment types, like stocks or bonds, and estimate annual returns, keeping risk in mind.
Step 7: Prepare for emergencies
Allocate a portion of your corpus as an emergency fund to handle unexpected expenses or crises during retirement.
Step 8: Regularly review
Frequently review and adjust your retirement plan to accommodate changes in life, financial goals, and market conditions, ensuring you stay on course.
Conclusion
As you embark on your journey towards financial security in retirement, maintaining your organisation and making informed decisions is crucial. Whether you are starting your retirement planning or addressing other financial needs, you can rely on FloatR to streamline the process and keep tabs on your progress.
FloatR empowers you to easily oversee your retirement objectives, assess various scenarios, and confirm that you’re heading in the right
direction to achieve your retirement corpus goals. Your retirement aspirations are well within reach – let FloatR help you turn them into reality!
What Is Corporate NPS?
What is the Corporate National System (NPS)?
Retirement is an inevitable phase of life, and it is a period that many of us look forward to. However, in India, many individuals are ill-prepared for retirement. They often rely on their children to support them in their golden years. Unfortunately, these retirement years can sometimes be financially challenging and uncertain.
In the ever-evolving landscape of employee benefits, the NPS (National Pension System) has gained prominence as a vital tool for securing financial stability during retirement. Corporate NPS, an extension of the standard NPS, is a retirement savings scheme offered by employers to their employees.
In this blog, we will explore the concept of NPS and corporate NPS and their differences. Additionally, we will explore corporate NPS’s benefits and who can help your company get started on offering this to their employees.
What Is NPS?
The National Pension System (NPS) is a retirement savings program based on defined contributions. It allows individuals to voluntarily contribute to their individual pension account throughout their working years, ultimately building a pension fund from which they can derive a steady income after retirement or upon reaching the designated retirement age.
What is Corporate NPS?
Corporate NPS is a pension contribution fund that allows employees and their employers to contribute a portion of their salary towards their retirement. These contributions are invested into stocks, bonds, and other securities.
Contributions to NPS offer a high degree of flexibility, dependent on the employer’s compensation and retirement benefit policies for its employees. Employees and employers can contribute equal or unequal contributions to the scheme.
There is no obligation for the employer to contribute to the NPS accounts of their employees, giving employers the discretion to choose their level of involvement in this regard.
NPS is managed by the PFRDA (Pension Fund Regulatory and Development Authority). PFRDA has prudent regulation, transparent investment guidelines, and regular monitoring of fund managers conducted by the NPS Trust.
NPS accounts are easily portable, which allows individuals to maintain their accounts regardless of changes in their geographical location or employment circumstances.
NPS offers flexibility in several key aspects, including the choice of Point of Presence (PoP), Pension Fund Managers (PFMs), Investment Options, Annuity Service Providers, and Annuity schemes.
Compared to similar pension schemes worldwide, NPS is recognised for its cost-effectiveness, offering a low-cost solution for retirement savings.
NPS transactions are user-friendly and web-enabled, ensuring ease of use for account holders. All transactions are tracked and recorded through the Central Recordkeeping Agency (CRA) system. Individuals can conveniently check their fund balance, Net Asset Value (NAV), and contribution status through the CRA website.
Differences between NPS and corporate NPS
Here are the major differences employees and employers can look to understand NPS and CNPS better:
Applicability and sponsors
NPS is available for all the citizens of India and is sponsored by the government of India. People from the private, public, and unorganised sectors can also opt for an NPS. In contrast, corporate NPS is exclusively available to employees of corporations that have chosen to participate, with sponsorship provided by the corporate entity.
Management
NPS is under the exclusive management of PFRDA, while CNPS is overseen by a trustee designated by the corporate entity.
Investment of contributions
Under NPS, individual contributors have an option to choose their fund managers. Whereas in NPS, investment managers are appointed beforehand.
Both individuals as well as employers get a tax deduction when investing in an NPS.
Withdrawals and annuities
NPS permits partial withdrawals after three years of subscription completion, with a requirement that 40% of the corpus must be utilised to secure annuities during retirement. In contrast, CNPS allows employers to establish a trust deed, enabling flexibility in making withdrawals based on their chosen guidelines.
Benefits of corporate NPS to employers
The NPS scheme offers several advantages to employers:
Tax benefits
Companies registered with NPS can enjoy tax benefits when they contribute to their employees’ pension funds.
Business expense deduction
Since April 1, 2012, up to 10% of the employer’s contribution towards pensions can be deducted as a legitimate business expense.
Cost savings
Corporations can save on expenses associated with trust establishment, fund management, and recordkeeping.
Flexibility
Companies have the option to either select a pension fund for their employees or allow employees to make their own choices.
Co-contribution platform
NPS provides a platform for co-contributing towards employees’ pension plans, fostering a collaborative approach to retirement savings.
Conclusion
We understand the importance of corporate pension schemes in securing your employees’ financial future. This scheme also helps you to save up on your taxes. If you are an HR or a curious employee, connect with us now. FloatR can guide your company at every turn and help you plan an efficient corporate pension plan for your employees. Corporate NPS ensures retirement stability and overall well-being, and we make it seamless. Take the first step towards financial empowerment with FloatR and corporate NPS – your employees’ brighter tomorrow starts today!
Advantages and Disadvantage Of Mutual Funds?
Advantages and Disadvantages Of Mutual Funds?
Mutual funds offer several advantages and disadvantages for investors. It’s essential to consider these factors when deciding whether mutual funds are suitable for your investment needs. Here are some of the key advantages and disadvantages:
Advantages of Mutual Funds:
Diversification: Mutual funds pool money from multiple investors and invest in a diversified portfolio of securities. This diversification helps spread risk, reducing the impact of poor performance by individual investments.
Professional Management: Mutual funds are managed by experienced professionals who make investment decisions on behalf of investors. This expertise can be beneficial, especially for those who lack the time or knowledge to manage their investments actively.
Liquidity: Mutual fund shares can typically be bought or sold on any business day at the fund’s net asset value (NAV), providing investors with liquidity and flexibility to access their money.
Accessibility: Mutual funds are accessible to both individual and institutional investors. Many funds have relatively low minimum investment requirements, making them accessible to a wide range of investors.
Variety of Options: There are numerous types of mutual funds available, each with its own investment objectives and strategies. Investors can choose funds that align with their specific financial goals and risk tolerance.
Transparency: Mutual funds are required to disclose their holdings and performance regularly, providing investors with transparency about their investments.
Automatic Reinvestment: Many mutual funds offer automatic reinvestment of dividends and capital gains, allowing investors to compound their returns over time.
Economies of Scale: Mutual funds benefit from economies of scale, which can lead to lower transaction costs and potentially lower fees for investors.
Disadvantages of Mutual Funds:
Fees and Expenses: Mutual funds may charge various fees, including management fees (expense ratios), sales charges (loads), and other costs. These fees can reduce an investor’s returns over time.
Lack of Control: When you invest in a mutual fund, you are entrusting your money to a fund manager’s decisions. You have no direct control over the individual securities in the fund’s portfolio.
Tax Inefficiency: Mutual funds can distribute capital gains to investors, which may result in tax liabilities, even if you haven’t sold your fund shares. Tax consequences can vary depending on the fund’s trading activity.
Overdiversification: While diversification is an advantage, some mutual funds may become overly diversified, making it challenging for investors to understand the fund’s true risk exposure and potential returns.
Market Risk: Mutual funds are subject to market risk, and their returns can fluctuate based on the performance of the underlying securities. There are no guarantees of profits or protection against losses.
Redemption Fees: Some funds may impose redemption fees if you sell your shares shortly after purchasing them. This fee is intended to discourage short-term trading.
Load Fees: Load funds charge fees when you buy or sell shares, reducing the initial investment or the amount received upon selling.
Limited Trading Flexibility: Mutual funds typically trade at the end of the trading day at the NAV, which means investors cannot take advantage of intraday price movements.
Conflict of Interest: In some cases, fund managers may have incentives to make certain investment decisions that benefit the fund management company rather than the investors.
It’s important for investors to carefully evaluate the specific mutual funds they are considering and understand their individual advantages, disadvantages, and associated costs before making an investment decision. Additionally, investors should consider how mutual funds fit into their overall investment strategy and financial goals.
What Is Mutual Funds?
What Is Mutual Funds?
A mutual fund is a type of investment vehicle that pools money from multiple investors and uses that pool of funds to purchase a diversified portfolio of stocks, bonds, or other securities. These funds are managed by professional investment managers or portfolio managers who make decisions on behalf of the investors.
Here are some key
characteristics of mutual funds:
Diversification: Mutual funds typically invest in a wide range of securities, which helps spread risk. This diversification can reduce the impact of poor performance by any single investment.
Professional Management: Mutual funds are managed by experienced professionals who make investment decisions based on the fund’s stated objectives and strategy. Investors rely on the expertise of these managers.
Liquidity: Mutual fund shares can usually be bought or sold on any business day at the fund’s net asset value (NAV). This provides investors with liquidity, as they can easily access their money.
Transparency: Mutual funds are required to disclose their holdings and performance regularly, providing investors with transparency about their investments.
Variety of Options: There are many different types of mutual funds available, each with its own investment objectives. Common types include equity funds (investing in stocks), bond funds (investing in bonds), money market funds (investing in short-term, low-risk securities), and hybrid funds (mix of stocks and bonds).
Accessibility: Mutual funds are accessible to both individual and institutional investors. Many mutual funds have relatively low minimum investment requirements, making them accessible to a wide range of investors.
Fees: Mutual funds may charge fees, including management fees (expense ratios) and sales charges (loads). These fees can impact an investor’s returns, so it’s important to be aware of them.
Distribution of Profits: Mutual funds often distribute profits and income to investors in the form of dividends or capital gains. These distributions can be reinvested or taken as cash.
It’s important for investors to carefully consider their financial goals, risk tolerance, and investment time horizon when choosing a mutual fund. Different funds have different objectives and risk profiles, so investors should select funds that align with their individual needs and preferences. Additionally, investors should review a fund’s prospectus and historical performance before making an investment decision.
Types Of Mutual Funds?
Equity Funds:
- Large-Cap Funds: These funds invest primarily in large, well-established companies with a history of stable growth.
- Mid-Cap Funds: These funds focus on medium-sized companies, which may offer a balance between growth potential and risk.
- Small-Cap Funds: These funds invest in smaller companies with higher growth potential but also higher risk.
- Sector Funds: These funds concentrate on specific sectors of the economy, such as technology, healthcare, or energy.
- Dividend Funds: These funds primarily invest in dividend-paying stocks, making them suitable for income-oriented investors.
Bond Funds:
- Government Bond Funds: These funds invest in government-issued securities and are considered relatively low-risk.
- Corporate Bond Funds: They invest in bonds issued by corporations, offering potentially higher yields but also higher risk.
- Municipal Bond Funds: These funds invest in bonds issued by state and local governments, often providing tax advantages.
- High-Yield (Junk) Bond Funds: These funds invest in lower-rated, higher-yield bonds, which come with higher credit risk.
Hybrid Funds:
- Balanced Funds: These funds maintain a mix of both stocks and bonds to provide a balance between growth and income.
- Target-Date Funds: Designed for retirement planning, these funds adjust their asset allocation over time, becoming more conservative as the target date approaches.
International/Global Funds:
- International Funds: These invest in securities outside the investor’s home country.
- Global Funds: These invest in both domestic and international securities, providing a broader global exposure.
Specialty Funds:
- Real Estate Investment Trust (REIT) Funds: These funds invest in real estate properties and can offer a source of income.
- Commodity Funds: These invest in commodities like gold, oil, or agricultural products.
- Socially Responsible (Sustainable) Funds: These funds follow ethical or environmental criteria in their investment decisions.
Index Funds:
These funds aim to replicate the performance of a specific market index, like the S&P 500, by holding a similar portfolio of assets. They often have lower expense ratios compared to actively managed funds.
Exchange-Traded Funds (ETFs):
ETFs are similar to mutual funds but are traded on stock exchanges like individual stocks. They offer flexibility in trading and often have lower expense ratios.
Alternative Funds:
These funds employ non-traditional investment strategies, such as hedge funds or private equity-like approaches, and may be used for diversification and risk management.
Inverse and Leveraged Funds:
These specialized funds aim to provide the opposite or multiples of the daily performance of an index, often used for short-term trading or hedging.
Investing in Digital Gold is a Smart Decision?
Investing in Digital Gold is a Smart Decision
After fintech companies and big jewellery brands have started offering an option in digigold, it’s been talk of the year. This article talks about how investing in digigold can be fruitful for you!
India is one of the highest gold-consuming countries in the world as per World Gold Council, 2022. Nation’s love for gold dates back a thousand years. Indian households, especially the middle class population, have the most extensive private global gold holdings.
In India, gold is a store of value and is a symbol of wealth and status. It is considered an auspicious metal especially in Hindu and Jain cultures. Ladies of the houses wear ornaments made of gold on special occasions and events.
The importance of gold extends to more personal life events as well. It is a deeply ingrained part of Indian marriage rituals to gift gold. About 50 percent of the country’s gold demand is derived from weddings. Thanks to the grand celebrations and past history, gold is deeply rooted in the country’s tradition and culture. Aside from Diwali, festivals like Akshay Tritiya, Pongal, Onam and Dhanteras are incomplete without buying gold.
Now that we are amidst the festive season, gold buyers are purchasing the yellow metal to make the festivals more auspicious and brighter with the gold glistening! It’s remarkable to notice that the digigold purchase is also pacing up.
However, physical gold comes with its share of risks as well. To list a few:
People are inclining towards buying digital gold because of its multiple benefits.
Let’s take a look at why you should consider buying digi gold this festive season.
· Secure Storage
Now, there’s no need to be scared of your gold getting misplaced or robbed. The biggest advantage of digi gold is that it’s hassle free and safe storage; they are secured in safe vaults.
· Limit on investment
On FLOATR, you can start investing in digi gold with just Rs. 51. This kind of option is not available when it comes to physical gold.
· Ease of Exchange
It can easily be exchanged anytime and anywhere for physical gold, bar or coin at the market value. This advantage helps individuals looking to convert their digital assets into physical ones. Those who wish to access their physical gold can have it delivered at their doorstep.
· Genuine
Digital gold is 24K and comes with 99.9% purity. Buyers do not have to worry about purity and genuineness. Gifting Digi gold is a great option for gifting. In any Indian festival, people can gift digital gold to their loved ones without any wastage fee or making charges and this gifting option will cost them way less money than physical gold.
Protect yourself against volatile markets
A gold investment has long been hailed as a reliable option, and it has found a place in portfolios that span decades. The way gold is held is changing, but gold investing as a whole is unlikely to go out of style, especially for long-term investors.
Conclusion
Digital gold is a perfect choice for those looking to buy pure gold or start their investment journey in gold with lesser money. It’s a lucrative investment option and an increasing choice even for Indians.
You can start investing in digi gold on FLOATR anytime and anywhere. Buy or sell anytime at market prices with zero making charges or wastage cost. Digital gold is highly secured in Sequel Vaults monitored by IDBI Trust on FLOATR.
Now you can also gift your gold or silver to someone at zero cost on FLOATR and make their celebration more golden!
What Is The Right Time To Start Investing?
Investment is truly a journey that goes through Planning, Budgeting, Saving, Investing and Discipline over a period of set milestones. Over the course of this journey Investors need to have patience and not lose focus towards the set goal.
However, lot of people have this dilemma about “When should I start investing”? Shall we focus on enjoying for the first five years of our working life as we have long time to think about investment? These are some common questions among many youths.
Instead of answering this question theoretically, a more appropriate approach could be to see the results or impact of starting at different stages of our life. A statistical understanding of this impact may give a clear understanding about the best time to start investing.
Few assumptions-
1. An adult starts their earning life / 1st job at the age of 22 years and aims to stop earning at the age of 60 years. So essentially, one could have an earning span of 38 years.
2. Investment gives an annual return of 10%.
3. Investment amount is stepped-up by 10% every year. i.e. If I am investing Rs.1000 per month today then after 1 year, I will invest Rs.1100 per month and so on.
PERSPECTIVE 1: The positive impact of starting early
Target Maturity Amount: Rs. 2 Crores
As shown in the graph, if a person starts investing at the age of 22 years, he/she needs to start with only Rs.1,200 every month to reach the goal amount of Rs.2 Crores. A delay of 5 years will mean monthly investment should start with Rs.2250, almost double. And, if one does not start till the age of 35 years, monthly investment needed will be more than 5 times of what was needed if started at the age of 22.
Hence, starting an investment plan right after getting our first job allows us to invest very small which may not be so difficult for most. We don’t even have lot of commitments at this age so saving small amount is easy.
PERSPECTIVE 2: The negative impact of starting late
Assume an investment of Rs.1200 per month irrespective of the age at which one starts. The maturity amount at the age of 60 years shows a significant difference based on the starting time.
One who starts at 22 years of age will accumulate Rs.2 Cr whereas, just 5 years of delay will mean only about 50% of the maturity amount (i.e. 1.06 Cr) will be achieved. If someone does not start till the age of 35years then maturity amount will be only Rs.38 Lakhs… which is significantly less.
Power of Compounding plays a huge role in deciding our maturity amount. Longer we invest, higher the returns could be.
START INVESTING AS YOUNG AS YOU CAN, IDEALLY FROM THE TIME YOU GET YOUR FIRST SALARY.
Even Rs.500 of monthly investment at the age of 22 years, with annual step up by 10 to 20% based on your affordability is a very strong start. Over time you won’t realise how these small contribution have turned big if invested with discipline.
Are you also one of those who did not start your investment yet? It is never too late, start it right away with as small as you can.
Importance Of Personal Finance Management
Importance of Personal Finance Management
Technology has prevailed in all the aspects of regular utilities including finance and credit savings. It has been among people for years as they were not able to save their money in order or in the right direction for its investment. Later in the ending years of the 20th century, a wave of online personal finance management was introduced with complete attribution of saving as well as investing money. From then till now, personal finance management is decluttered from simple purpose to complex one. Nowadays, it is rendering its customers nudges to assist them to build better financial routines. Although it started with simply bill paying in the initial years, one can now manage every financial activity online.
The use of technology, the internet, and mobile phones is so far practicable that nowadays everyone is looking for quick and readily available services even for finance, personal financial management is providing this service. The combination of technology and changing customers’ behaviors has made it possible. Financial literacy needs to be encouraged among the population so they can better understand the importance of personal finance management.
Personal finance management is a system to manage all your personal finances and also lead a path to rightly invest your money to bear you profitable goals. It strengthens different personal finances and mobile banking tools. Personal finance management is all about managing your money individually or being a family. It is about how you save, invest and budget your earned money to gain profit.
According to one study in America, 64% of adults are suffering from stress due to a lack of money. To overcome this stressful situation, it is the need of the hour to choose envisaged ways to invest money so you can gain profit. So the stress among adults can be combated.
In a country like India who is still figuring out investment and financial literacy, personal financial management becomes a boon.
In the initial times, customers had very little familiarity with its utilities. With the passage of time, new ways of investment are introduced using advancement in personal finance management. It includes the financial planning which is required in order for a person to have enough money for the most important needs of their life. Such savings can be earned by investing properly to gain enough financial reserves to purchase liabilities.
Process of personal finance management
By prioritising the force of money streaming in and making efforts to be assured and focused on finances. Assessment of various ideas and ways that touch financial needs is necessary. It may act as a side business or investment idea at the right time. Using money at an appropriate time and amount can define your frugality. So by identifying your financial situation related to house-hold budgeting, tax standing, and saving reserves, you can initiate personal financial management. Determine financial goals that you want to achieve. An integrated investment strategy can identify alternatives for investments. Later, evaluate alternatives proposals. Also, evaluate risks. After managing all these aspects, implement the strategy of personal financial assistance. For evaluating strategy, review it after implementation.
It allocates the resources properly:
The disintegrated amount of your savings is supposed to be invested in a workable place from where you can earn more profits. It helps to allocate money for a safe and sound investment. A person who is investing in business but not using money to buy his liabilities will earn more profits.
Savings from income can save petty cash:
Two types of savings direct and indirect are being invested using tactics of personal financial management to earn financial reserves. Direct ways are monthly income and business earnings. And indirectly is earning by interest. All these earnings are placed in the personal management apps to gain profits. It is possible that you have enough income that there is no need to save for the future, still, it is necessary to know how to save your petty cash. Because you have to pay the taxes in case you are earning too much.
Health insurance contribution:
Health is an inevitable benevolence of the creator. So any compromising activity for health can make you suffer a lot. So in an emergency case, you have to save some money from your earnings and invest in health insurance. Because investing in health is remunerative.
Retirement planning:
Earning throughout life can make you more comfortable in the late stages of life. When you are looking for maximum assistance from others. For that time you must have to save some credits to seek good health, food, and transport. As you are physically weak and unable to go for the striving activities. It is more crucial to be financially literate in order to invest income and to go for cheap frugal financial decisions in your life.
It propels awareness and responsibility:
When you are aware of all details of your finances, earnings, and spending, then you are better able to make insightful decisions for earning, saving, spending, and investing. A sense of responsibility is aroused that you are responsible for all the betterments and losses of your life. Personal finance management determines the direction of human life in prevailing economic and social circumstances.
It is a tenet to protect from bankruptcy:
Being a reputable citizen is a very graceful admiration of someone’s life. Personal finance management can save you from this bankruptcy or defaulted handler. as it protects you from the wrong decision of investing. Also, guide you to use the debt you take from banks. When you do not pay back the debt or falsely use interest drawn from the bank. Bank can enlist you as a defaulted handler of interest.
Conclusion:
A clear vision of investing your money, creating a budget, setting financial goals, investing, and saving money can make you more precise in financial issues as it can render multiple advantages. This vision can give you more accurate strategic planning, organizing, and control of financial undertakings. So you can earn more profits using this envisaging tactic of finance. Personal finance management has a direct impact on the comfort of your life that you opt for. It all depends on you whether you want to opt for short-term comfort by spending on discretionary items. Or want to opt long term comfort by investing money in the appropriate direction.
