The significance of seclusion Plan

Asset - The significance of seclusion Plan

Hi friends. Yesterday, I learned about Asset - The significance of seclusion Plan. Which may be very helpful to me therefore you. The significance of seclusion Plan

P.V. Subramanyam's maiden book on retirement is not about comprehension how the financial store functions or how to time the market. Instead, it deals with the most unexplored issue of retirement planning. Clearly, the book seems to have hit the right chord as it is a bestseller having sold over 45,000 copies. A trainer, columnist, blogger and now an author Subramanyam spends a few moments with Cafemutual to talk about retirement planning and how Ifas could merge this theme as groundwork for advising clients. Edited excerpts....

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Asset

How did you get the idea of writing this book on retirement Planning?

I was surprised to find many Us based books on retirement planning, but nothing in the Indian context, hence the plunge. I was asked by my friends in Moneycontrol to write the way I speak. Around 70 per cent of the book was already written and stored electronically. So I just had to compare it.

Given the total absence of group protection in India, is the vast majority aware of the point of retirement planning?

Talking about Indians is wrong because there is a huge section of the population that leads a hand-to-mouth existence. But the educated and the upper middle class have earned more than what they would have expected, thanks to the booming economy. But most of their money is parked here and there. They never sat down to plan their retirement. In our culture, we are conditioned to think of life with our children forever, accepting the joint family, and pretending that everything is fine. It suits the government because population spend their money in products that offer Around 8 per cent returns. There is no group turn over happening on retirement planning.

While the rich and upper middle class are earning and recovery sufficient for retirement, are the middle and lower middle classes prepared?

No. Many of them are not ready but they will not accept it because they are happy with the feeling that they have much more wealth than their father. They are content saying 'My father had only Rs 20 lakh while I already have Rs 75 lakh. How much more will I need?'

What are the risks for the population who are 'under-prepared for retirement'?

Life expectancy has gone up compared to what it was in earlier days. So population live longer and are dependent on children. Medical expenses have gone through the roof. So, not being able to buy sufficient Medical cover and not having sufficient money to pay for Medical expenses are a cause of concern. Children not having sufficient money to look after the parents can put the entire family in a tight spot.

What about the population in the unorganised and self-employed categories?

I do not literally deal with this category and hence, not the right person to comment. It is very rare that such population can understand a Nav based product. The most prominent requirement is financial inclusion and financial instruction before they can be asked to do a long term Sip.

What are the key challenges according to you in retirement planning?

There are four key challenges. First is managing your money. population who claim that they can manage their money literally may muck it up. Second is asset allocation. Too much money is in debt and too microscopic in equity, if there is something at all. The third challenge is rising life expectancy. There is a possibility that a person will outlive his or her savings. And the fourth challenge arises from the absence of long term care insurance in India. This could supervene in growth in Medical expenses.

In helping their clients get ready for retirement, should advisors look at the so-called retirement products (Pension plans by life insurance companies, mutual funds)?

They should look at general venture products and depending on the age of the customer, park a chunk of the money into equity plans. If a person is retiring in 2-3 years, there is an potential risk in the aggressive portfolio. They should not reconsider pension plans from life insurance companies. The plans from mutual fund are slightly better. But the fee buildings of the insurance plans offered by mutual funds might hurt.

What venture products in your plan are best mighty for retirement planning?

For any goal which is more than 10 years away, it is equity, equity and always equity. For a lesser period goal, one can have a mix of equity and debt.

How can Ifas grow their business by helping clients save for retirement?

Almost all clients will want to save for their retirement. Younger clients should be asked to start with smaller amounts in Sips and as they grow older, growth savings through Sips in more number of funds. Even for older clients, the shift out of equity should happen only at an age of say 70 years! For the advisor, long term Sips and long term Swps will ensure a great trail commission and good leads.

Are Ifas using retirement planning as a theme to talk about retirement and venture products?

Ifas don't have a stock to sell other than the Templeton India Pension Plan which has a retirement lock-in. Even Ifas who are doing big label Sips are not much focused. I don't think earmarking for a goal based venture is happening.

As in the Us, retirement planning is nowhere close to becoming a big business in India?

The growth in the mutual fund industry in the Us happened because of 401k plus schemes (retirement schemes). There is no such plan in India. No mutual fund business in India ever went to the ministry of finance to question a stock which is 80C deductible and a pension plan. The only two firms who did it were Kothari Pioneer and Uti. There is no option of how to get your money back in pension products of insurance companies. They decide how much money you will get back and you have to buy an annuity. I got an annuity of five per cent from an insurance company. Now that's microscopic when I can get nine per cent return on a bond issued by prominent banks! Buying a good equity fund from a mutual fund business is good than buying a pension plan from an insurance company.

What room do you think could be there for products that are sold as retirement solutions by mutual funds? How good are products offered by mutual funds which rebalance the folder after you reach a inevitable age?

I don't know either the store has the capability to sell such a product. There are very few population selling Templeton's Pension Plan. The distribution law is still chasing Aum. Not many population are happy to doing an auto pilot mode for 20 years. population think that they can time the store in spite of empirical evidence to the contrary.

National Pension project - how favorable is it?

It's too involved as of now. I am not sure about the fund management expertise. The rates are too fine but I guess it will literally change. If that is not done then good fund managers will not be willing to come in. I am willing to talk about it only after I see its performance for 4-5 years. Also I am not very sure how the annuity will be priced.

Your next book?

It is telling doctors about money - Wealth prescription for Doctors.

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