The Economic Times Wealth - August 22, 2022

26 Pages·2022·7 MB·English

T E T
HE CONOMIC IMES
HOW TO
TRANSFER
WEALTH TO
GRANDKIDS
P12
www.etwealth.co|Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, Pune|August 22-28, 2022|24 pages|`8
SHOULD
YOU DELAY
RETIREMENT?
FIND OUT HOW
SAFE YOUR
DEBT FUNDS
Find out the benefits of ARE NOW
P6
extending your work life
and ways to prepare for
the transition after
retiring. P2
WHY BANKING
STOCKS
ARE WORTH
INVESTING IN
P10
PROBLEMS
SMALL
BUSINESSES
FACE
P13
cover ssttoorryy
02 The Economic Times WealthAugust 22-28, 2022
SHOULD
YOU DELAY
RETIREMENT?
Find out the benefits of
extending your work life
and ways to prepare for
the transition after
retiring.
S
E
G
A
M
Y I
T
T
E
G
S:
O
T
O
H
P
Agrees Sanjiv Singhal, Founder & CPO,
What’s working against your
By Riju Mehta Scripbox. “Retirees can be divided into two
groups – those who are financially not sta- retirement corpus?
W
hen Col. (retd) Daljeet S. ble and cannot retire on their existing sav-
Cheema took premature ings, and those with a comfortable corpus With rising healthcare inf lation, higher life expectancy and falling
retirement from the army who want to stay engaged or pursue a long interest rates, your retirement savings could get squeezed.
in 1994, only a couple of deferred dream,” he says.
Inflation (CPI) Medical inflation Interest rate (SCSS)
months before he was For many others, it’s simply a matter
due to retire, his pension was just `4,500 a of being physically and mentally alert. Life expectancy
month. However, three days after quitting, “Today, 60s is the new 40s. Earlier, people 63.09 yrs 67.32 yrs 70.19 yrs
he started a teaching assignment in the wanted to put up their feet at 60, but now, 14%
Panjab University, which brought in ad- they have high energy, good health, and
ditional income, and led to other career op- want to give back to the society or simply
9%
tions. “I could also indulge in my passions, not sit idle,” says Neeti Sharma, Senior 9.3% 9%
2004
including writing books (18 books and a Vice-President, TeamLease Services. 6.4%
6-7% 7.4%
couple in the pipeline), teaching and moti- Agrees Delhi-based Neerja Gupta, 62, till July
vating people,” says Panchkula-based Col. who launched her own YouTube channel 4.3%
Cheema, who, at 79, is not only very active, immediately after retiring as a govern-
but also financially secure. ment school teacher, in September 2020. “I
In fact, financial insecurity is one of the will continue to work till my health allows. NA
main reasons people are forced to continue Why shouldn’t I work when I’m still so ac-
2002 2012 2022
working because retiring at a specific tive and have so much to contribute to the
Source: Macrotrends (life expectancy); Average CPI inflation (Inflation.eu);
age is not a choice everyone can make. society?” asks Gupta, who also acquired
Motilal Oswal Financial Services (medical inflation for 2022); medical inflation for 2012 is approximate.
“Normally, you postpone retirement if you another teaching job in a school last year.
feel you can do more work, have the flex- “The state of your health and retirement YOU CAN’T RETIRE IF… retirement is insufficient funds to take
ibility to get an extension in your organisa- age of spouse are other deciding factors in care of post-retiral needs. According to
tion, or if you don’t have a sufficient corpus delaying retirement,” says Dinesh Rohira, There are several financial compulsions Scripbox’s Financial Freedom survey,
to take care of your post-retirement ex- Founder & CEO, 5nance.com. “If there is a that can force people not to quit work. nearly 80% of respondents are unsure of
penses,” says Santosh Joseph, Founder and time lag of five years between the spouses’ retirement planning, while 62% begin
Managing Partner, Germinate Investor retirement age, sitting idle may be difficult Retirement corpus is insuffi cient: saving actively for retirement only after
Services. for the one who retires earlier,” he adds. A predominant reason for delaying 30. Lesser time for saving results in a
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The Economic Times Wealth August 22-28, 2022 03
smaller corpus.
There are several other factors that
are working against you in building a big Gautam Patel, 65, Mumbai
retirement corpus. Higher life expectancy
in the past 20 years means that you will
now have to make your retirement corpus Retirement: 2017 @60 years
stretch for longer, say 80-90 years instead
Restarted work: 2017
of 70-80 years earlier. Add to it high infla-
tion, especially after Covid. The increased Job before retirement: HR, business
spending will mean that you may not be
Source of income: Salary + business income
able to save as much as you did earlier.
Besides, medical (14-15%) and education Job after retirement: Set up gaushala in Nashik + business
inflation (4-5%) have also risen in the past
Source of income: Business income
couple of years, impacting your ability to
save more for retirement, as you divert
FINANCIAL CHECK
funds for children’s financial goals and
healthcare needs.
The falling interest rates in small
savings schemes preferred by senior
citizens is another reason the retirement Change in income Financial goals Debt / Liabilities
kitty is taking a hit. While the PPF rates Same as before Achieved Nil
have fallen from 8.8% in 2012 to 7.1%, the
Senior Citizens Savings Scheme rates
have dropped from 9% in 2012 to 7.4% now.
Besides, higher lifestyle expenses with
travelling and other hobbies after retire-
House Health Insurance
ment mean that you may run out of your
Self-occupied `30 lakh
corpus in your lifetime.
You don’t have a medical corpus: The I had sufficient corpus at the time of retirement, but set up the gaushala
soaring cost of healthcare needs means because I wanted to spend more time in cleaner environment at a slower pace.”
you should have either adequate insurance
or buffer to take care of your health in re-
tirement. Without enough funds, you will
either be a liability for the children or find
yourself in a tight spot, making it impor-
tant to keep working. Neerja Gupta, 62, Delhi
You have debt: If you have been unable
to repay a home loan or have other loans Retirement: September 2020 @60 years
that need to be serviced beyond your
Restarted work: September 2020
retirement, it will necessitate a regular
income and work.
Job before retirement: Government school teacher
Your goals are incomplete: With the Source of income: Salary from school
age of marriage getting extended in the
Job after retirement: YouTube channel, pvt school teacher
past couple of decades, the achievement
Source of income: Salary from school, YouTube, pension
of children’s goals has also been pushed
back. By default, most senior citizens are
FINANCIAL CHECK
forced to delay their retirement till the
goals have been met.
GAINS OF DELAYED RETIREMENT
Fall in Financial Debt / House
While financial gains are the most obvious income goals Liabilities Self-occupied
motivation, there are other advantages too. 20% Achieved Nil
You cut risk of outliving the corpus: Health Insurance
“If you retire at 60, you are at the peak of Govt covers medical costs + `5 lakh
independent cover for self, nil for husband
your career in terms of your skill set and
salary. So two more years of delay could
get you 10 more years of expenses,” says Retirement age should be raised to 65 years because late marriages mean
Rohira. Even if you are earning 50-70% of
people are not able to fulfil their responsibilities by the time they retire.”
your last drawn salary, you can stretch
your retirement corpus till 90-100 years or
even beyond (see Working after 60…) with-
out bothering about the impact of inflation can avail of corporate health insurance You can live longer and be fi tter: very busy and am doing a lot of things,”
on your expenses. for yourself and your spouse at highly Various studies have shown the positive says Col. Cheema. Besides preventing
subsidised rates. Besides, you can avail of effect of working beyond retirement on stress and dementia, working can help deal
You can get employer insurance: One other perks like LTA, EPF, etc. health, both physical and mental. A 2015 US with the issues of loneliness and lack of
of the biggest expenses after retirement study of 83,000 respondents, published in self-esteem that comes with retiring from
is on medical issues. Typically, however, You don’t have to depend on kids: A Preventing Chronic Disease, suggested that active employment.
senior citizens are ill-equipped to handle big advantage is that you don’t have to de- those who worked over 65 years were thrice
these because either they don’t or can’t pend financially on your children if you more likely to be in good health and about Indulge in your passions: If you have
buy sufficient insurance due to high continue to work for 5-10 years after retir- half as likely to have serious health issues built a sufficiently large corpus, this
premiums or pre-existing diseases. By ing. You can live a dignified life without like cancer or heart disease, compared to is the best time to live your dreams.
extending your retirement with the taking contributions from your kids or those who didn’t work. “If I have avoided Mumbai-based Gautam Patel is doing
same organisation or a new one, you impacting their financial planning. dementia and Alzheimer’s, it’s because I’m just that. The 65-year-old has built an ad-
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04 The Economic Times Wealth August 22-28, 2022
equate retirement corpus and now runs a
gaushala in Nashik where he spends 2-3
Col. (retd) D.S. Cheema, 79, Panchkula days a week. “I always wanted to move
away from the hectic Mumbai life and
live in a peaceful village after I saw one
Retirement: October 1994 @52 years of my relatives doing the same,” says the
Restarted work: October 1994 former HR executive, who now sells ghee
at `3,000 a kg from around 30 cows he has
Job before retirement: Defence services at Shevgedang in Nashik.
Source of income: Army salary
PREPARE FOR TRANSITION
Job after retirement: Motivational trainer, Author
Source of income: Pension, training, royalty Whether you want to or are forced to con-
tinue working after retirement, it is impor-
tant to start planning 4-5 years before you
FINANCIAL CHECK
hang your boots.
Choose what to do and how much: Be
clear about the type of work you want to do
and the time you can devote to it when you
Rise in Financial Debt / House
income goals Liabilities Self-occupied retire. Know whether you want a full-time
20-30%% Achieved Nil or part-time job, whether you want to work
from home or go out in the field. “A lot of
people may want to opt for semi-retirement,
Health Insurance
where they are working 4-5 hours and keep-
Government covers medical costs
ing themselves occupied without the stress
of a regular job,” says Sharma.
You should also check if you can extend
When I retired, the pension was very low, but soon after I was offered good
your retirement at your existing workplace
teaching and training assignments, which helped a lot.” or will have to look for a new job, whether
you want to launch your own enterprise or
have an advisory role.
Upskill & network: Depending on
the type of work you are looking at, you
should start upgrading your skills with
free courses from Coursera, Udemy,
Working after 60 can stretch
Udacity, etc, and increasing your network
beyond your existing job. “You should
your retirement corpus
also research the educational qualifica-
tions, certifications, licenses and other
Even if your post-retirement career provides an income that is regulatory requirements,” says Singhal.
50-70% of your last drawn salary, your corpus can grow sizeably.
Job options: While your skillset and
networking should help you find job av-
Suppose your last drawn salary is `2 lakh a month enues, you can also look for opportunities
on professional sites like LinkedIn and
Retirement corpus at 60 years: `60 lakh
Naukri.com, which offer jobs specially for
(80% corpus invested @ 8% and 20% corpus invested @ 10%)
retired personnel.
If you have a specialised skill or experi-
At 10% annual withdrawal (assuming a minimum annual
ence, you can get into consulting, advisory
drawdown of `10 lakh), corpus will last: till 69 years of age
or mentoring roles, which also pay well.
Now suppose, after retiring, you start working again... Other options include tutoring, training,
setting up a YouTube channel, blogging or
content development, starting your own
enterprise, online data entry or virtual
...and earn 50% of income
assistant jobs, among others. “With the gig
50% income after re-employment: `1 lakh a month ...and earn 70% of income economy booming, a lot of people now work
as freelancers or part-timers, have side
Monthly expenses after retirement: `60,000 70% income after re-employment: `1.4 lakh a month
hustles, and also from home,” says Joseph.
Amount invested @ 8%: `40,000 Monthly expenses after retirement: `60,000
Research remuneration: “The post-
Amount invested @ 8%: `50,000
retirement remuneration may not be the
If you work for 5 years same as when one was fully employed, but
Total corpus after 5 years: `1.82 crore If you work for 5 years most people are fine with 60-70% of their
last drawn salaries,” says Sharma. Still,
*At 10% annual withdrawal (assuming a minimum Total corpus after 5 years: `2.06 crore you should check the market rates and
annual drawdown of `10 lakh), corpus will last: *At 10% annual withdrawal (assuming min. annual draw- negotiate, if necessary. “Those who have
till 111 yrs of age
down of `10 lakh), corpus will last: till 115 yrs of age retired from senior management or high
posts at the peak of their careers act as
advisers to start-ups or small businesses
If you work for 10 years
If you work for 10 years and are making much more money with
Total corpus after 10 years: `5.85 crore Total corpus after 10 years: `6.99 crore 4-5 hours of work than they were in full-
time jobs,” says Rohira.
*At 10% annual withdrawal, corpus will last:
*At 10% annual withdrawal, corpus will last:
till more than 150 years of age
till more than 150 years of age
Please send your feedback to
*Withdrawals will begin after 5 and 10 years. Calculations by Sameer Bhardwaj. [email protected]

mutual ffuunnddss
06 The Economic Times Wealth August 22-28, 2022
Have bond funds Provisions on inter-scheme bond trans-
fers, prone to misuse amid a liquidity
crunch, have also been tightened.
Valuation norms have also undergone
changes. All debt securities are now val-
ued entirely on mark-to-market basis,
really cleaned up? irrespective of maturity. This brings fund
NAV closer to actual realisable value of
the portfolio. For below-investment grade
securities, funds have to take the price pro-
vided by valuation agencies. The regulator
Evidence suggests debt funds have taken a number of measures to improve introduced a revamped riskometer, which
aims to capture inherent risks in portfo-
portfolio quality. What can happen during an economic crisis remains to be seen. lios and alert investors of deterioration in
risk profile. All debt funds are now evalu-
ated on three risk parameters—credit,
by Sanket Dhanorkar interest rate and liquidity risks. The new
riskometer gives prominence to liquidity
I
t seems like a bad dream now. The risk and makes a clear distinction between
storm that engulfed bond funds a securities with structured obligations,
few years ago has given way to calm. credit enhancements or any other exotic
It has been some time since the last arrangements with the issuer. Further,
credit event. No longer are these funds are mandated to disclose their port-
funds ‘side-pocketing’—carving out bad folio every 15 days, apart from specifying
apples from a portfolio. Haemorrhaging yields of underlying instruments.
in the asset base of debt funds has mostly
subsided. Embattled Franklin Templeton Setting own house in order
India has salvaged some of its reputation These past events have forced fund houses
by largely paying back investors in its six to reassess internal risk frameworks. Sebi
wound-up debt funds. A regulatory clean- asked fund houses to not completely rely
up has followed, seeking to usher in safety on credit rating agencies and put in place
and transparency. So have debt funds got robust in-house risk assessment practices.
their act together? Or is the current lull It mandated that the internal policy of
masking risks lurking beneath, waiting to a fund house should have provisions to
resurface at the next economic crisis? generate early warning signals including
yield-based alerts on deterioration of cred-
Tighter norms it profile of any issuer. Several fund houses
A default by then AAA-rated IL&FS in have improved this critical function.
S
2018 triggered a spate of credit defaults and E Visibly, debt funds seem to have en-
G
A
downgrades. Investors were left reeling as M hanced credit quality of portfolios. Arun
funds’ investments in multiple companies TYI Kumar, Head of Research, FundsIndia,
T
like Essel Group (Zee) and DHFL, among GE says, “Most asset managers have turned
others, turned sour. These events sharply conservative. The pandemic turned a
eroded debt fund NAVs, wiping out up stance, Sebi mandated liquid funds to park having structured obligations or credit credit crisis into a graver liquidity crisis,
to 4-5 years’ returns in some instances. 20% of their AUM in safer, liquid assets enhancements. Other debt schemes’ expo- which can be trickier. It has made every-
Apart from credit risk funds, schemes in such as cash, government securities and sure to such instruments is also restricted one more conscious of liquidity risks. Poor
safer fund categories were also found hold- T-bills. Other debt funds were told to invest to 10% of portfolio. This provision targets quality, illiquid papers have mostly been
ing sub-standard assets. at least 10% of assets in liquid instruments. funds’ affinity for AT1 bonds, which pro- cleaned up.” Data shows proportion of sov-
Following this, Sebi tweaked norms This helps avoid distress selling of instru- vide high yields but are riskier than other ereign, AAA and equivalent rated bonds
governing this space. It introduced meas- ments to meet redemptions. Funds’ expo- debt instruments. It is mandatory to have in fund portfolios (ex-credit risk, gilt and
ures to make debt funds safer and aligned sure to individual sectors is also capped at security cover of at least four times when liquid funds) has climbed from 71% in July
with the category risk profile. Vidya Bala, 20%, apart from limiting exposure to hous- investing in debt securities having credit 2018 to 82% in July 2022. The quantum of
Head – Research, Primeinvestor.in, says, ing finance companies to 10% from 15%. enhancements backed by equities directly AA or equivalent rated papers has steadily
“Regulatory norms have helped reduce Liquid and overnight schemes have been or indirectly. Funds are permitted to invest moderated from over 17% to 6%.
indiscreet exposure to credit risk.” For in- barred from investing in instruments in only listed non-convertible debentures. This marks a clear shift in stance by
fund houses. Funds that earlier took
Bond funds have turned cautious on credit risk credit bets in very short or low duration
funds have turned cautious. For example,
Most funds have gradually shifted away Baroda BNP Paribas Short Duration,
from low quality paper after painful DISTRIBUTION OF ASSETS (AS % OF TOTAL ASSETS) ICICI Pru Ultra Short Term, Indiabulls
credit episodes of past. JULY 2018 JULY 2022 Short Term, Kotak Low Duration and L&T
Low Duration held less than 40% in AAA
Fund category AAA + Sov AA equiv A & below AAA + Sov AA equiv A & below
and sovereign paper now hold more than
Banking and PSU Fund 81.7 10.0 0.9 92.8 2.1 0.0 60% . Credit risk funds have also beefed up
their portfolios. The category as a whole
Corporate Bond 83.1 8.5 1.0 91.8 2.2 0.0
has hiked presence in AAA-rated and sov-
Floating Rate 74.6 18.5 2.0 90.8 5.6 0.0
ereign bonds from sub-20% in 2018 to 32%
Long Duration 97.9 0.0 0.0 90.7 4.4 0.0 as of July 2022. Exposure to A and below
Medium to Long Duration 79.5 8.7 0.8 89.6 4.0 0.0 rated bonds has declined from 23% to 8%.
Credit risk funds’ conservative stance is
Ultra Short Duration 75.3 16.5 3.5 86.1 5.2 0.1
visible in the low running yield-to-maturi-
Low Duration 68.3 23.1 3.5 81.7 6.7 0.0 ty (YTM). The highest YTM for any credit
Short Duration 70.1 20.4 3.9 79.2 7.1 3.7 risk fund is 8%—far lower than the 12-14%
YTM earlier. Aditya Birla Sun Life Credit
Dynamic Bond 66.1 12.7 4.5 72.3 4.3 0.2
Risk and Kotak Credit Risk are among
Medium Duration 45.2 40.0 8.9 63.2 21.1 1.9 funds to have turned visibly cautious.
Credit risk 18.7 51.5 23.0 32.0 46.2 8.1 Improving credit profile of Indian com-
panies has ensured no major defaults or
Compiled by ETIG Database. Source: Accord Fintech.
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The Economic Times Wealth August 22-28, 2022 07
Several shorter duration funds have shifted stance Finally, the riskometer is far from a
fool-proof indicator of risk or safety. The
These funds were earlier exploring scoring system relies on weighted average
DISTRIBUTION OF ASSETS (AS % OF TOTAL ASSETS)
credits lower down the quality ladder. figure—which magnifies the risk profile
JULY 2018 JULY 2022 of larger bets while drowning out risks in
smaller sized bets. Kumar says, “The score
Fund name Fund category AAA + Sov AA equiv A & below AAA + Sov AA equiv A & below
may mask risk lying in smaller portion of
L&T Low Duration Low Duration 28.1 60.1 0.0 88.0 10.4 0.0
a fund’s portfolio.” He insists investors dig
Baroda BNP Paribas Short Duration Short Duration 39.9 49.4 2.5 85.7 11.7 0.0 deeper. A fund boasting higher YTM rela-
Kotak Low Duration Low Duration 17.9 64.2 15.0 81.8 16.2 0.0 tive to peers should be looked at closely.
ICICI Pru Ultra Short Term Fund Ultra Short Duration 35.3 40.7 21.0 70.1 14.7 0.9
Kotak Medium Term Medium Duration 25.6 49.3 21.3 67.8 18.3 5.7
Indiabulls Short Term Short Duration 32.9 45.6 16.7 63.5 7.7 0.0
Compiled by ETIG Database. Source: Accord Fintech.
downgrades. After the pandemic-led credit “The credit scenario, as stated by some
stress of 2020-21, Indian companies have rating agencies, may have improved. ing a cautious stance. But it is not far when
witnessed a rebound in credit quality. Additionally, fund exposure to lower rated one AMC starts pushing the bar in search
India Ratings, a credit rating agency, saw papers has also reduced,” Bala observes. of higher yields and few others follow suit.”
its 2021-22 downgrades to upgrades ratio Besides, regulations have come far but
stand at a decadal low of 0.3, marking a re- Work in progress some gaps remain. The most obvious,
versal of a three-year trend. Primeinvestor Debt funds seem to be in a better place com- according to Bala, is not fixing credit
observed three trends between October pared to a few years ago. Tighter norms limits for some categories of funds while
2020 and now: One, number of downgraded and healthier risk assessment standards defining them for others. While several
instruments is coming down. Two, the have put them on a stronger footing. fund categories have defined duration
downgrade is by a notch, say, from AA+ to Portfolio liquidity is now front-and-centre limits (indicating interest rate risk), these
AA or AA to AA-. There are fewer down- and no longer takes a back seat to return. are not restricted in taking credit risk.
grades that move beyond investment Yet, risks can emanate from unexpected “We think this is necessary as any amount
worthy levels (below AA) unlike earlier. corners. The next economic crisis may of risk classification does not help a retail
Three, many marginal downgrades were expose yet unknown risks. There is also a investor understand the risk involved. A
in well-known companies and not obscure danger of some fund managers becoming better option would be to define the credit
ones. Bala notes that two shifts have hap- complacent. Kumar avers, “Given the re- allowed in each category, thus curtailing
pened, improving safety in debt funds. cent pain, fund managers are content tak- varied practices within a fund category.”
your queries
QQQQQQQQQQQ
08 The Economic Times WealthAugust 22-28, 2022 &
AAAAAAAAA
I am a salaried individual. I will retire I am 32. I am investing a total of `7,500
in 2032. I want a corpus of `50 lakh in Axis Bluechip, Axis Long Term Equity,
to `1 crore at the time of retirement. Kotak Flexicap and Parag Parikh Flexi-
Can you suggest a table of invest- cap funds. Should I invest in Canara
ments across a spectrum of products Robeco funds too? I wish to purchase
and the specific amounts to be invest- land by the end of this year. Also, which
ed in each of these to achieve the tar- is a better option, purchasing land or a
get corpus in the next 10 years? house? I only have `6-7 lakh to spare.
Our panel of experts will answer
It is crucial to have a realistic estimate of
All the funds you have are solid funds and
the corpus needed at retirement. While questions related to any aspect should hold you in good stead. You can con-
you already have a figure of `50 lakh to
sider increasing your contributions to any of
`1 crore in mind, the adequacy of this of personal finance. If you have
these funds instead of investing in yet anoth-
amount must be checked, especially af-
a query, mail it to us right away. er fund. Purchasing land and constructed
ter factoring in inflation. Since your age,
house are both equally good options. You
monthly expenses and other details are
QUESTION OF THE WEEK just need to figure out what works best for
not mentioned, let’s understand the
you. Buying land and constructing a house
math using an example. Let’s consider
can be very fulfilling. However, it is also a
your age as 50, household expenses to-
complicated process involving a number of
day at `40,000 per month, inflation at
I am 40 and plan to retire in 4-5 years. My fami- clearances. It also requires personal involve-
6%, returns during the next 10 years at
ment throughout the construction process.
11% CAGR, post-tax retirement returns ly comprises my spouse and kids. I work for a
With a constructed house, all you would need
at 5%, and life expectancy of 85 years. multinational and hold RSU of the company
to do is due diligence of the property to make
Based on this data, the amount needed worth `3 crore, which will continue to grow due
sure all the paperwork is in order and the ti-
at retirement comes out to be `2.5 crore, to allocation every six months. I also subscribed tles are clear. Constructing your own house
requiring a monthly investment of
for Employee Stock Purchase Plan, for which also gives you some breathing space. You can
around `1 lakh. If the monthly expense
`38,000 gets deducted from my salary every invest in land right now and leave the prop-
is `25,000 per month, then a corpus of
month. The advantage is that I get shares at 25% erty alone with just a boundary wall con-
`1.5 crore will suffice with monthly in-
structed. You can construct the house a few
vestment of `70,000. However, if your discount. I hold Indian equities worth `60 lakh
years down the line once you have your fi-
monthly expenditure is around `50,000, and have `1 crore in FDs. I have `50 lakh in PPF
nances in place. You can get a loan to con-
then a corpus of `3 crore will be needed. and `50 lakh in PF. I maintain a savings account
struct your house as well, which you can con-
To build the corpus, choose a combina- balance of `10 lakh. I draw a monthly salary of vert to a regular home loan later on. You can
tion of equity mutual funds and EPF. The
`2.5 lakh after all deductions. I pay medical purchase land for `6-7 lakh in several parts
percentage allocation will depend on the
insurance premium of `30,000 annually for a of the country. Getting a constructed house
steepness of the target and other consid-
family cover of `30 lakh. I pay `23,000 annually for that amount may not be possible. Howev-
erations. In addition, do cater for a good
er, be very thorough with the paperwork no
health cover and a for an LIC policy. I deposit `4 lakh annually to
matter what option you choose. Take legal
contingency fund. three PPF accounts for my kids and spouse. I
help to make sure the title is in order. Buying
have two cars on which I spend `40,000 annual-
a house of our own is impossi-
ly. I do not have any liabilities. I do not own any ble without a home loan. So
Prableen Bajpai
property. Is my investment strategy right? work towards improving
Founder FinFix®
Research & Analytics your eligibility and credit
score.
You have built a solid financial base with reasonably good
allocation to equity and debt. But in the equity portfolio,
you have high concentration risk if employer RSU and on- Adhil Shetty
going ESPP accumulation are considered in calculations. CEO, BankBazaar
I want to invest in an US-based index
Though the MNC employer might be a safe-looking option
fund, but most such funds are not
at present, we can never be sure about the prospects in a
accepting fresh investments now due
to RBI restrictions. Are there any US- fast-changing world. You need to have a more diversified I purchased an LIC policy on 28 June
based index funds that I can invest in? equity portfolio and it’s best to add equity funds/ETFs at 2012 with a basic sum assured of `10
least via monthly SIPs. It is also a good idea to compare
lakh and paid a single premium of `2
the returns of your direct Indian stock portfolio with suit- lakh. I have received a sum of `4,09,198
As the Indian mutual fund industry’s
able benchmarks and see whether you are at least getting as maturity proceeds on 28 June 2022.
limit of $7 billion for investing in over-
market returns or not. If you do not see much alpha there, What will be the tax implication on the
seas stocks has been exhausted, Sebi
then it’s better to stick with equity funds and simplify maturity amount received?
has directed fund houses to stop accept-
things. Your FD portfolio of `1 crore can also be divided
ing fresh inflow in international funds.
into a combination of FD and debt funds for better post- The maturity proceeds of an LIC policy
However, there is a separate limit of $1
tax returns that debt funds bring to the table due to index- are exempt u/s 10 of the Income-tax Act
billion for funds investing in overseas
ation benefits. With regards to your PPF contributions, the provided the premium payable doesn’t
ETFs, which is not yet exhausted. That’s
rule is clear—a person can only deposit up to `1.5 lakh via exceed 10% of the sum assured, if the
why some schemes investing in foreign
own income into their own or all PPF accounts. Invest ac- policy is purchased on or after 1 April,
ETFs are still accepting inflows. The ex-
cordingly. If your `23,000 LIC policy is a traditional one, 2012. Since, in your case, the premium
pense ratios in international or US based
then the sum assured would be very small. And since RSUs paid exceeds 10% of the sum assured, the
funds can be higher compared to domes-
get allocated over the next few years, it is a maturity proceeds shall be subject to tax
tic funds as the money is being parked in
good idea to purchase a simple term as ‘income from other sources’ depend-
other funds or securities in the foreign
plan of around `2 crore for the time ing on the individual slab
country which can lead to more opera-
being to cover the risks. To be real- rate applicable for you.
tion costs. You can consider
ly sure about your decision to re-
investing in Kotak Nas-
tire early and still meet all your
daq 100 FoF or ABSL goals in time, it’s suggested to Amit Maheshwari
Nasdaq 100 FoF. Partner, AKM Global
have your case properly as-
sessed by an investment adviser.
Manish Kothari Dev Ashish Ask our experts
Co-founder and CEO, Zfunds Founder, StableInvestor and
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Sebi-registered investment advisor
[email protected]
guest ccoolluummnn
The Economic Times WealthAugust 22-28, 2022 09
Equity bonanza for EPF subscribers
EPFO data shows what an advantage equity exposure has been for all, says Dhirendra Kumar.
are tougher because detailed inputs are A slightly different methodology which al- all—keeping up with inflation. Under fixed
money not in publicly released data. lows for increasing monthly investments income, your retirement savings’ real (in-
To figure this out, I made some reason- in 2015-19 (which certainly happened) re- flation-adjusted) growth is basically zero.
mysteries
able assumptions and calculated the ball- sults in returns of about a per cent higher, That opens retirees to the real risk, the
park returns for the equity part. Here’s which only strengthens the argument that frightening spectre of old age poverty. EPF
DHIRENDRA KUMAR
what I did. From the released information, I’m making. investments have been made for decades.
CEO, VALUE RESEARCH
we know the total investments for four The EPFO should make this calcula- Over such long periods, the risk-reward
periods. `39,662 crore for 2015-2019, `31,501 tion and release it regularly to effectively trade-off for equities is hugely positive, and
The debate over whether the crore for 2019-20, `32,070 crore for 2020-21, counter worries about the equity part’s that for fixed income is hugely negative.
Employees’ Provident Fund (EPF) `43,568 crore for 2021-22 and `12,199 crore risk. Releasing the total gains doesn’t do A few days ago, the EPFO board did not
should invest in equity is effec- for the first three months of 2022-23. For that job. If the markets fall sharply, the discuss a proposal to raise the equity limit
tively over. A few days back, data each of these periods, let’s assume that total rupee gain could drop. However, from from 15% to 20% because the employees’
about EPFO investments was tabled in par- the investments were divided into equal now on, the annualised rate of return will representatives opposed it. If one goes by
liament. The headlines said that total in- monthly instalments, SIP style. For the lat- certainly stay positive and remain much the hard data, increasing the equity por-
vestments in equity of `1.59 lakh crore had ter four periods, this is probably quite ac- higher than the fixed income component of tion would be the most pro-employee move
grown to `2.27 lakh crore, yielding a gain curate. However, for 2015-19, the monthly the EPFO’s earnings. Receiving this infor- possible. The sooner Indian savers—and
of `67,619 crore. That sounds great, but it investments were likely not equal but in- mation regularly would be a great comfort those managing their retirement sav-
doesn’t tell you much about the actual rate creasing. This means that my assumptions for EPFO members. The logical conclusion ings—understand and appreciate this,
of return these investments generated, will likely depress the guessed returns but that one can draw from this is that the the better it is for everyone. We’ve been
which is what we need to know. let’s go with that for the moment. equity exposure in EPF should be higher. talking about equity in EPF since at least
Remember, the debate is about whether Given these assumptions, I created a Not just that, the EPFO should restructure 2002. That’s almost two-thirds of the work-
the additional returns from equity are spreadsheet where the XIRR function tells its inflow so that the total equity exposure ing life of most salaried people. Someone
worth the additional risk. To conclude, me that the annualised rate of return was (not just the fresh inflow) reaches a higher who started working in 2002 at 22 is now 42
one needs the annualised rate of return for 13.6%. Not bad, especially as a counter- level quicker. years old. A huge opportunity for generat-
both parts. Knowing the rate of return for weight to the fixed income part’s anaemic The data shows us that the real risk lies ing real wealth has been frittered away for
the fixed income part is easy—it’s likely returns. As I pointed out above, the actual not in the equity but the fixed income. The such a person. Let’s not extend this error
to be between 6.5 and 7.5%. Equity returns returns are likely to be somewhat higher. fixed income component is barely—if at into the future.
stocks
10 The Economic Times Wealth August 22-28, 2022
Banking stocks to benefit
from sector growth
Rising demand for credit, economic growth, better
asset quality and improving fundamentals will
support banking stocks in the future.
by Sameer Bhardwaj to strengthen further, driven by rising
capacity utilization, government’s capex
B
anking stocks have put up a push and deleveraged corporate balance
strong performance in the sheets,” says an SBI research report.
first quarter of 2022-23, sup- The net interest income growth is see-
ported by a revival in credit ing traction due to the re-pricing of assets
growth, increase in net inter- and liabilities, a higher share of floating
est income, (NII), improvement in asset rate loans and margin expansion. On
quality and lower credit costs. Reports the other hand, the asset quality is im-
from ICICI Securities, Motilal Oswal, proving due to moderation in slippages,
Sharekhan and rating agency ICRA healthy recoveries and better collection
show a stable sector outlook for 2022-23. efficiencies. An ICRA report expects
There are 457 companies out of 500 gross slippages of the banking sector to
on the BSE500 index that have declared trend lower in 2022-23 at 2.5-2.7% com-
their first quarter results so far. Twenty pared to 3.1% in 2021-22. Also, the gross
five banking stocks of the BSE500 non-performing advances (GNPAs) are
index delivered an aggregate consoli- expected to decline to 5.2-5.3% by March
dated net profit growth of 31.8% y-o-y. 2023 from 6% as of March 2022.
Comparatively, aggregate consolidated However, there are concerns about
net profits of the other 432 companies (ex- rising treasury losses due to increase
cluding banks) grew 17.6% y-o-y, accord- in bond yields. The 10-year bond yields S
E
G
ing to data from Bloomberg. Also, the have jumped 84 bps in 2022 so far due to A
M
banking sector benchmark BSE Bankex monetary tightening by RBI and large YI
T
has delivered 11.1% returns in 2022 so far government borrowings. An Ind-Ra ET
G
and has significantly outperformed the report estimates the mark-to-market
general market benchmark BSE Sensex, impact across banks between April-June ICICI BANK
which delivered 2.5% returns. 2022 to be around `1,1790 crore on a post-
The Indian economy is bouncing back tax basis. This has impacted the pre- UPSIDE
12-m forward PBV Current price (`) 1-year target price (`) POTENTIAL
despite global risks and a Sharekhan provisioning operating profit (PPOP) in 13
report expects capex cycle to pick up the first quarter of 2022-23. %
2.9 878.9 993.3
during the second half of 2022-23, which “A sensitivity analysis indicates that
will drive healthy loan growth going a 100 basis points upward shift in the
THE BANK REPORTED strong perfor- ANALYSTS’ RECOMMENDATIONS
forward. The signs of rising credit/loan yield curve over 2022-23 could impact the
mance in the f irst quarter of 2022-23 BUY HOLD SELL
growth is visible in the RBI’s latest data PPOP of the overall banking system by
with PPOP growth of 19% y-o-y, driven 51 1 0
on the deployment of gross bank credit. 4.5% and return on assets by 9 bps,” adds
by 21% y-o-y loan growth and 32% y-o-
In the industrial sector, the overall the report. However, analysts from the
y growth in fee income. The PAT grew lieves that ICICI Bank can transform into
outstanding credit grew at a multi-year rating agency also believe that the banks
50% y-o-y aided by healthy NII growth, a low-risk steady performer that can
high of 8.7% y-o-y in May 2022 compared are in a much better position to absorb
strong fee income and controlled provi- offer steady 16% ROEs with consistent
to 0.8% y-o-y in May 2021. Segments such the impact of upward movement in G-Sec
sions. market-share gains. It has a strong posi-
as food processing, textiles, chemicals yields compared to their past cycles as
According to a Motilal Oswal report, tion on capital, funding, technology and
and chemical products, engineering, the same can be minimised using their
the bank is seeing strong recovery in a sustained underwriting quality. The
vehicle, vehicle parts and transportation investment fluctuation reserve and re-
business trends across key segments valuations of the bank can sustain in
equipment and infrastructure reported classification of trading portfolios.
such as retail, SME and business bank- line with more expensive peers such as
y-o-y growth in credit in May 2022. The In addition, the borrowing costs are
ing. Asset quality trends remain steady, HDFC Bank and Kotak Mahindra Bank.
credit to the MSME sector grew 8.7% y-o- expected to rise in the coming quarters,
while PCR (provisioning coverage ratio)
y in May. On the other hand, retail credit which may impact the asset quality.
remains one of the best in the industry ICICI Bank
or personal loans growth that constitutes “Banks are likely to start chasing de-
at 80%. 125.13
29% of the total non-food credit was at a posit growth aggressively to meet incre-
Another report from JP Morgan be-
12-month high of 16.4% y-o-y in May. mental credit demand, amid reducing li- BSE Bankex
Improved utilisation, capacity expan- quidity surpluses in the banking system 109.55
100
sion and shift of large borrowers from and pass on these costs to the borrowers.
BSE Sensex
debt and capital markets to banks for This could pressurise the debt-servicing
107.66
their funding/working capital require- ability of borrowers and remains a key
ments are driving the demand for credit monitorable for the asset quality,” adds
from the corporate sector, whereas the ICRA report.
traction in home loans and vehicle loans ET Wealth analyzed six banking
is supporting the retail credit growth. stocks that have good analyst coverage
“With capacity utilisation nearing with a decent 1-year forward price poten-
75%, investment activity is expected tial. Here’s what it found: 16 Aug 2021 16 Aug 2022