Igniting FIRE - Steps and strategies to retire early
Igniting FIRE - Steps and strategies to retire early
Retirement marks the beginning of the golden years of one's life, a life marked with relaxation, exploration, and fulfilment, making it a perfect reward for years of hard work. Freed from the demands of the workplace, retirees often discover newfound passions, embark on adventures, travel the world, or simply relish in the joy of spending quality time with loved ones. In India, the conventional age for retirement is 60. However, everyone dreams to retire early and begin these golden years as early as possible. But to retire early, one needs to put in a lot of effort to build a roadmap to achieve this target.
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To retire by the age of 40, one must save about 50-70% of their income. To achieve FIRE, one needs to strictly follow the strategy of 'save first, spend later'. The aggressive savings rate may seem daunting; however, by saving a substantial amount of your income, one can aim to rapidly accumulate wealth and build a sufficient corpus to sustain a desired lifestyle while letting go of traditional employment income.
The FIRE movement emphasizes the importance of modest living, cutting unnecessary expenses, and finding creative ways to increase income. Some common principles, such as starting early, being consistent, and investing in a disciplined manner, can be effective in achieving the FIRE goal. One should also avoid opting for loans and have sufficient insurance and emergency corpus in place to avoid withdrawing from the retirement corpus prematurely.
To achieve FIRE, one must invest a larger portion of their income as compared to average investors. Hence, this amount should be invested in a place that gives one an opportunity to build considerable wealth. Equity mutual funds arise as one such investment avenue where investors can build wealth in the long term.. Even a small SIP of just Rs 10,000, invested 25 years ago, would now have built a corpus of Rs 1.88 crore. (Assuming investment in Equity Fund and an average return of 12.64% p.a. as per AMFI Best Practices. Guidelines Circular No. 135/BP/109/2023-24 dated November 01, 2023.)

With mutual funds, one can invest with flexibility and ease. SIPs in mutual funds would further enhance the accessibility and affordability of investing. An SIP would also automate investing, hence providing the benefits of consistency and disciplined investing.
The rule of 25 is a guiding principle to determine the retirement corpus required to achieve FIRE. According to this rule, one must multiply their annual expenses at the time of retirement by 25 to determine the amount of corpus required to retire comfortably. For example, if an individual's age is 25 and monthly expenses amount to Rs. 50,000, then first, they would have to calculate the retirement expenses based on inflation. Consider the inflation is 6% and the retirement age is 50. At this rate, the monthly expenses at the time of retirement would be Rs 2,14,594. Finally, to calculate the required retirement corpus, annual expenses need to be multiplied by 25. Hence, the corpus would be 25*(2,14,594 x 12), which would amount to Rs 6.44 crore.
The process of retiring peacefully at an early age doesn't end after building a corpus. One must also withdraw from the retirement corpus judiciously. Investors can start an SWP (systematic withdrawal plan) that can automatically generate systematic cash flows at predetermined intervals and predefined amounts. Through SWP one can not only build systematic cash flows, but they can also let the residual amount grow.

Since FIRE propagates early retirement, the number of years you stay in retirement also increases. For instance, your life expectancy is 80, and you wish to retire by 45 as opposed to the conventional age of 60, the number of years in retirement would be 35. To spend these 35 years with financial ease, one should withdraw only 4-6% of their retirement corpus for their yearly expenses. Considering that the retirement corpus is earning 8-10% CAGR during the reaping period.
Achieving financial independence and retiring early can be possible by following such strategies of aggressive savings and investment. Even if it is not as early as 40, one can aim to retire by 50 or 55. Building a clear roadmap to achieve this is highly important. Every individual is unique and might have different income, financial position, responsibilities, risk capacity, and financial needs. Hence, a tailored blueprint is necessary to achieve FIRE. A mutual fund distributor or a financial advisor can understand the unique needs of every individual and guide in the journey to achieve FIRE. Get in touch with a distributor and start your journey towards FIRE today!
NJ E-wealth
Should you invest just to save tax?
Should you invest just to save tax?
It is the start of the financial year! It is that time of the year when you upbraid yourself for delegating your tax filing for the last minute and making knee-jerk investment decisions at the end of the financial year to lower your tax burden that may backfire.
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When you invest in a financial product just for the purpose of tax saving, you may end up with an asset allocation that won't serve your goals or needs. Consider factors like your financial needs, risk appetite, life stage based requirements, time horizon, etc. to evaluate and devise a financial plan that aligns with your needs. For instance, if you are a young, unmarried salaried individual and want to accumulate wealth to meet needs in the long term like marriage, vacation etc. then your portfolio needs growth assets, investing in interest-bearing income assets only to save taxes will slow down the growth of your corpus. In the long term, the rate of return on growth assets like equity is likely to far exceed that of fixed-income products. That compromise may be expensive.
When saving tax is the sole motive of investment, you have very limited options available which may result in an inadequate or improper diversification of the portfolio. Such inadequacies can reduce the chances of potential gains or expose the portfolio to increased levels of risk as it becomes overly reliant on the performance of a few asset classes. Further, there are millions who still buy insurance policies with high premiums just to save tax. They persuade themselves that it's a smart way to reduce taxes. After a year or two, they discover that the premium is too expensive for them to pay and that stopping the policy will not be beneficial.

A well-diversified portfolio is the foundation of a sound investment strategy. Consider a diversified mix that includes stocks, mutual funds, fixed-income securities, real estate, and alternative investments rather than just concentrating on tax-saving options. By spreading your investments across a variety of asset classes, you can reduce risk and increase your chances of building wealth.
Generally, tax-saving instruments come with a long lock-in period, causing constraints on investors. While these instruments offer tax benefits, the inability to access funds when needed can hinder liquidity and limit the investor's ability to respond to changing financial situations or capitalize on emerging opportunities. There are various financial needs that require high liquidity and a short time frame. For example, if you want to save for a down payment on a house in 3 years, you cannot invest in a product with a 5 year lock-in period.
One of the significant drawbacks of having a long-term commitment to tax-saving instruments is the potential for slow growth of corpus. Some government-backed tax-saving investment avenues, such as PPF and NSC, are highly secure instruments, but offer low returns. These products are generally exposed to inflation & re-investment risks. Hence, the growth of investment corpus can be slow as compared to other robust investment instruments.

If your financial needs require you to take high risk and earn high return then investing in just tax saving instruments will not serve the purpose. However, ELSS is a kind of tax saving mutual fund under section 80C of the Income Tax Act, which invests predominantly in equities, hence providing investors with the dual benefit of tax saving and wealth building.
Rather than just focusing on tax-saving instruments towards the end of the financial year, investors should consider investing on a monthly basis. For instance, if an investor wants to invest in ELSS, then a SIP in ELSS would not only provide tax benefits but also offer greater opportunities for investors to build wealth through equity exposure.
Investment decisions should not be based solely on the motive of saving tax; rather, financial needs and risk appetite should be at the heart of any investment decision. Tax-saving investments are important, but they are only one part of the equation when it comes to financial well-being. A holistic approach considering tax saving instruments along with other asset classes can help build a diversified portfolio that not only aims for wealth accumulation but also seeks to minimize tax liabilities. Every investor is unique, having different financial needs and risk profile, a mutual fund distributor or an investment advisor can guide investors to make the right investment decisions and follow a rational approach to investing.
NJ E-wealth
Why should you buy Health Insurance at a young age?
Why should you buy Health Insurance at a young age?
"I am young, do regular exercises, fit & healthy. Do I need health insurance?" Most of us ponder upon this question when someone talks about health insurance. It may sound weird, but the right time to get a health insurance policy is as early as possible. Possibly, when you are young, healthy and fit.
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At an early age you get a broader selection of basic & comprehensive health insurance plan options. After a certain age, due to weakening immunity & lifestyle related health issues, there are chances of getting some chronic diseases like Asthma, Bronchitis, Cancer, Diabetes, Hypertension, etc; This will limit the health insurance options available to you.

It means young customers not only get more plan options but also more sum insured options available at their selection. Young customers are offered higher sum insureds like 50 Lacs, 1 Crore or more at very affordable premiums. Whereas old age customers are usually not offered high sum insureds as the risk is higher than normal so is the premium.
A lot of young couples can benefit from their health insurance policies if they buy health insurance early in life. You can ensure coverage for future family planning. With maternity including prenatal care, delivery, and postnatal care and related covers under health insurance, they can get access to better healthcare facilities with minimal or no additional waiting periods.
There are certain waiting periods in a health insurance policy. Only after serving those waiting periods, claims are eligible to be paid. Some of the waiting periods are:
  • First 30 days - no claim is payable except accidental.
  • Initial 2 years waiting period for specific diseases / treatments.
  • Maternity waiting period which can be around 9 months to 3 years.
  • Pre-existing diseases waiting period which can be around 3 to 4 years.
If you start early, these waiting periods can be easily served without the need to make a claim as the chances to fall ill are comparatively less.
Preventive healthcare services such as annual health check-ups, vaccinations and screenings, can not only help you save money on your healthcare but also help in maintaining a good health over a long period of time. Buying health insurance at an early stage in your life helps in early detection of potential health issues and enabling timely interventions. It helps you to maintain good health and prevents the occurrence of serious illnesses.

If you maintain a healthy lifestyle, follow an exercise regime, do regular gym/yoga/swimming/walking/running etc; insurers give wellness points which can be used to get a discount on the premiums. The discount may vary from 5% to 50% on the renewal premiums depending on your plan.
  • Age is one of the major factors in calculating premium for health insurance. Usually, higher the age, higher are the premiums as an old age person is more prone to health risks.
  • Existing ailment is another major factor in increasing premium for health insurance. If you have a health condition, you may have to pay more premiums for your health insurance policy.
Therefore, one of the most crucial benefits of getting a health policy early is to lock-in at lower premiums and save on premiums over a longer period of time.
  • As discussed above, usually with age comes the health issues, therefore, insurance companies ask prospective customers to undergo pre-policy medical tests. Specifically to those who are above a certain age (for eg; 45 years) or customers who have declared a health condition in the proposal form.
  • But at an early age, the chances of you having to undergo a pre-policy medical check-up is very minimal. In such scenarios, insurers issue the policies instantly.
Several insurers provide a No Claim Bonus (NCB) for not making a claim during the policy year. This bonus can range from 5% to 200% of the sum insured. NCB can be accumulated over consecutive claim-free years and it does not affect premiums.

Guaranteed Cumulative Bonus (GCB) works the same way as No Claim Bonus, only difference is that this benefit is available irrespective of claims. It means whether you make a claim or not, your risk cover increases every year.

For Eg: if your sum insured starts at Rs. 5 Lacs, it can increase to Rs. 20 Lacs, Rs. 25 Lacs or 50 Lacs over a few years and that too without any extra charges. At a younger age, you can benefit from this NCB/GCB to increase your sum insured since you are less likely to fall ill & make a claim in the first few policy years.
Health insurance is a vital element of the entire financial planning, wealth creation and family well-being. Getting yourself & your family's health insured at an early age brings multiple benefits, setting a strong financial plan for a healthy and protected future. Don't delay or wait for a health issue to arise to consider buying a health insurance policy. So, give a thought to the above-mentioned advantages and buy a health insurance plan as early as possible.
loans
Ans: Clients can get loans on Equity, Debt, and Arbitrage and Liquid funds. Please find below details for the same.

FUND TYPE

SCHEME SUBTYPE

LTV %

Equity

All Funds (except Small Cap, Sectoral, and Thematic)

45%

Small Cap / Thematic / Sectoral Funds

35 - 40%

Debt

Liquid, Money Market, Overnight, Ultra Short Duration

80%

Banking and PSU Debt Fund, Corporate Bond, Floater, Gilt, Low Duration, Short Duration Funds, FOF Domestic Debt

75%

Medium Duration, Medium to Long Duration

70%

Dynamic Bond, Gilt Fund with 10-year constant duration, Long Duration Funds

65%

Arbitrage Funds, ETF,

50%

Conservative Hybrid Funds

40%

Balanced

All Funds

45%
Fund Manager INTERVIEW
patner Interview
Mr. Rahul Pal
Chief Investment Officer at Mahindra Manulife – Fixed Income
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Aparna Tushar Pawar (ARN-70168)
AMFI REGISTERED MUTUAL FUND DISTRIBUTOR

Aparna Tushar Pawar
  • Financial Assessment
  • Retirement Assessment
  • Child Future Assessment
  • Portfolio Review
  • NRI INVESTMENTS
  • mutual fund : debt/equity/elss
  • insurance : general/health/life
  • realty : plots/villas/flats
  • portfolio management services (pms)
  • fixed deposit : company fixed deposit
  • bonds : tax saving bonds

"We have taken due care and caution in compilation of this E Newsletter. The information has been obtained from various reliable sources. However it does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions of the results obtained from the use of such information. Investors should seek proper financial advise regarding the appropriateness of investing in any of the schemes stated, discussed or recommended in this newsletter and should realise that the statements regarding future prospects may or may not realise. Mutual fund investments are subject to market risks. Please read the offer document carefully before investing. Past performance is for indicative purpose only and is not necessarily a guide to the future performance."

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