Comparing investment and interest rates

1. PPF. Every year you can vary the investment between 500 to 70,000. Lock-in period for 15 years. Rate of Interest is 8.8%.

2. A land/plot gives 15% to 18% rate of interest over the period of 15 years. 

3. A flat will give upto maximum of 12%. (still working on this)

Our flat - Cost of per sq.ft in 2008 is Rs.2500. Cost of per sq.ft in 2012 is Rs.4200. That is 11% appreciation. We are paying bank loan for 12% which is a loss. The only gain we save our rent. We usually get a rent close to 6% annually on the cost of the flat. 

Caution: Flat is a depreciating asset. Means we cannot directly equate it with market price.

If we don't have a loan, we save the 8% appreciation + 6% interest!

4. Equity - Something between 8 to 12% standard. 

5. Gold ETF is also a good bet! We can sell it to convert it to cash.

6. Bank FD - They give 8%.

I have not included NSC!

Ega Thesa Uruvaga Ani

This means, we appreciate a person/thing, even if he/its not worth it.

Occasions:

• To make fun of a friend or colleague or teacher. 
• With cunningness to cheat someone 
• To motivate / boost someone's confidence / morale  
• To end a heated conversation / argument easily

Other : http://healthywealthyhomemaker.blogspot.in/2011/08/vanja-pugalchi-ani.html

Essential Investments for Future

Today everyone of us are smart. We would like to be prepared for all the major expenses that we might face in the Future.

Major Financial Planning to be done for the Future:
1. Child's Higher Education
2. Child's Marriage Fund
3. Emergency Fund
4. Retirement Fund
5. Health Insurance / Medical Expenses Fund

I have not started saving for Emergency Fund and Medical Expenses Fund. This is because, even I am poor in Financial Planning. 

Anyway, I will start looking into them sooner.

My daughter is asking for Moon!

Yesterday night, my daughter woke up in the middle of the night and she started asking for moon with a cry. We couldn't help her for long. Finally she slept by herself again.

We couldn't control our laugh for a long time. What a dream. :)

How to plan for Retirement Fund?

Generally, we all start to think how much do we need for retirement. Retirement fund is also called as Annuity or Pension Fund from which we can withdraw a fixed amount. 

I wanted to calculate the retirement fund in the following ways.

1. Regular Annuity - Fixed withdrawal for limited time with no cash left behind
2. Inflation Adjusted Annuity - Withdrawal adjusted to inflation for limited time with no cash left behind
3. Perpetuity or Infinite Annuity.(Inflation not adjusted)

Regular Annuity

1. Monthly Expense NOW
Our monthly expense is 20,000. This is without school fees, parties, eating out, etc.

My husband is ~30 now and he might work till 50. So, after that we would need retirement fund for 20 years. (Everything is in God's hands!)

2. Monthly Expense in FUTURE


Years : 20 
Inflation : 15.
Amount needed after 20 years : 20000*(1+15/100)^20 (Compound Interest formula : P[1+R/100)^N])

Amount needed : 3,27,330.74


3. Annuity calculation

Number of Years after Retirement : 20
Rate of Interest : 8%
Annuity Principal Amount required: 3,93,94,687.68 ( Annuity = PV(rate,nper,pmt,,1))

4. Savings plan (SIP) for Retirement Fund

So, our family should catch up with 3,93,94,687.68 before my husband turns 50. 

This could be calculated using PMT in Excel.
SIP Monthly = 66,881.70. [PMT(8%/12,20*12,0,39394687)]

Is it possible to save this much on SIP for retirement Every Month??? Tiring isnt it??

I gave up calculating other Annuities as I understood well that those values are going to be even higher!

So, whats the solution for Retirement Fund? I will tell you our little own secret at the end!

Child Education Fund: http://healthywealthyhomemaker.blogspot.in/2012/12/how-to-fund-your-childs-education.html

Child Marriage Fund: 
http://healthywealthyhomemaker.blogspot.in/2013/01/childrens-marriage-fund-india.html

Children's Marriage Fund - India

Cost of Children's Marriage Fund - India

1. Cost Estimation for the Children's Marriage NOW.

In India, its a good culture that the parents try to reduce the burden of the children by funding the marriage expenses.

In my family culture, we have the habit of dividing the costs equally between both families. Expense per family (Engagement + Marriage) : 1,50,000
Cost of dress per family : 50,000

Total costs (Without Jewels) : 2,00,000


2. The costs of Funding the Children's Marriage in FUTURE.

Lets assume the number of years needed to fund the Child's Marriage: 15 years. 

The cost of inflation is 10 to 15%. As usual, I am keeping it on the higher end 15% so I don't end up in trouble. 

Years : 15 
Inflation : 15.
Amount needed after 15 years : 200000*(1+15/100)^15 (Compound Interest formula : P[1+R/100)^N])

Amount needed : 28,46,354.33

3. The savings required per month.

I am not going to talk about Equity or MF. I am simply concentrating on Recurring deposit at the rate of 8% for 15 years.

We can use a simple formula in MSExcel: PMT(Rate,Num of Years,PV,FV,type)
Rate = 8%
Num of Years = 15
PV = 0 (Initial amount)
FV = 64,56,758.40
Type - Not Required

SIP Monthly = 8,225.55. [PMT(8%/12,15*12,0,6456758) ]

Tax on Interest yielded is not taken into account. 

Next, We could plan for Retirement Fund.
http://healthywealthyhomemaker.blogspot.in/2013/01/how-to-plan-for-retirement-fund.html

Child Education : http://healthywealthyhomemaker.blogspot.in/2012/12/how-to-fund-your-childs-education.html