Are You Falling Prey To SMSs That Lure You With Guaranteed Pension?   Mar 01, 2019


(Image source: freepik.com)

Last Sunday, in a last ditch effort to keep up with my New Year resolution of being fit, I decided to go for a morning walk with my father expecting a quiet and peaceful conversation on literature, movies, literally anything but Finance.

But as luck would have it, we bumped into his friends, Mr Sharma and Mr Agarwal and unintentionally we ended up discussing the latest 'sure-shot-retire-rich' scheme that Mr Agarwal had come across.

I was well aware of this scheme, because I get at least 2-3 messages every day from these 'well-wishers'. The message reads like this:

Now I must give credit where it's due. For a company whose objective is to target a simple salaried individual (with a lack of financial literacy) and ensure that he pays a meagre sum of Rs 3,000 monthly for the next 15-20 years, they are spot on with their marketing. Their sales strategy plays on the two most important psyche of a middleclass man, Fear and Greed.

First, by using the catchphrase like, 'Why depend on family?' they are activating his fear of loss of monetary freedom or independence. Then by assuring a decent pension plus a 60 Lakh corpus on retirement, they are feeding his greed.

[Read More: 8 Key Lessons On Financial Freedom From 'Rich Dad, Poor Dad]

These two powerful emotions can sway almost any individual, however financially literate and aware he/she might be.

Coming back to the morning walk, Mr Sharma excitedly exclaimed, 'This is an opportunity of a lifetime, imagine, paying Rs. 3000 per month for the next 31 years and getting a pay out of Rs 1.32 Crore! The money will grow 11 times! This simply cannot be missed'.

'I agree Sharma Ji, what do you think Mr. Khude, shall we invest in this scheme, after all its only Rs 3,000 per month?' Mr Agarwal enquired.

'I will ask my financial advisor' my father answered and turned to me.

'We know what Deepika will say, 'Papa, these schemes are bogus and are marketing traps for innocent investors like you, trust me, mutual funds are the best', said Mr Sharma mockingly.

I must admit, Mr Sharma correctly predicted my words and I couldn't help but laugh at his naivety.

But I had to show them the proof and out came by excel sheet (on my mobile phone) and the following calculation broke their hearts.

Let me show you the harsh truth behind a 'sure-shot-retire-rich-quickly' scheme.

Table 1: The hidden truth

Age Years Cash Inflow Cash Outflow Net flow
30 01/04/2019 - 36,000 -36,000
31 01/04/2020 - 36,000 -36,000
32 01/04/2021 - 36,000 -36,000
33 01/04/2022 - 36,000 -36,000
34 01/04/2023 - 36,000 -36,000
35 01/04/2024 - 36,000 -36,000
36 01/04/2025 - 36,000 -36,000
37 01/04/2026 - 36,000 -36,000
38 01/04/2027 - 36,000 -36,000
39 01/04/2028 - 36,000 -36,000
40 01/04/2029 - 36,000 -36,000
41 01/04/2030 - 36,000 -36,000
42 01/04/2031 - 36,000 -36,000
43 01/04/2032 - 36,000 -36,000
44 01/04/2033 - 36,000 -36,000
45 01/04/2034 - 36,000 -36,000
46 01/04/2035 - 36,000 -36,000
47 01/04/2036 - 36,000 -36,000
48 01/04/2037 - 36,000 -36,000
49 01/04/2038 - 36,000 -36,000
50 01/04/2039 - 36,000 -36,000
51 01/04/2040 - 36,000 -36,000
52 01/04/2041 - 36,000 -36,000
53 01/04/2042 - 36,000 -36,000
54 01/04/2043 - 36,000 -36,000
55 01/04/2044 - 36,000 -36,000
56 01/04/2045 - 36,000 -36,000
57 01/04/2046 - 36,000 -36,000
58 01/04/2047 - 36,000 -36,000
59 01/04/2048 - 36,000 -36,000
60 01/04/2049 - 36,000 -36,000
61 01/04/2050 3,60,000 - 3,60,000
62 01/04/2051 3,60,000 - 3,60,000
63 01/04/2052 3,60,000 - 3,60,000
64 01/04/2053 3,60,000 - 3,60,000
65 01/04/2054 3,60,000 - 3,60,000
66 01/04/2055 3,60,000 - 3,60,000
67 01/04/2056 3,60,000 - 3,60,000
68 01/04/2057 3,60,000 - 3,60,000
69 01/04/2058 3,60,000 - 3,60,000
70 01/04/2059 3,60,000 - 3,60,000
71 01/04/2060 3,60,000 - 3,60,000
72 01/04/2061 3,60,000 - 3,60,000
73 01/04/2062 3,60,000 - 3,60,000
74 01/04/2063 3,60,000 - 3,60,000
75 01/04/2064 3,60,000 - 3,60,000
76 01/04/2065 3,60,000 - 3,60,000
77 01/04/2066 3,60,000 - 3,60,000
78 01/04/2067 3,60,000 - 3,60,000
79 01/04/2068 3,60,000 - 3,60,000
80 01/04/2069 63,60,000 - 63,60,000
XIRR 8.27%
(For Illustration purpose only)

If an individual were to start investing Rs 3,000 per month from age 30 years till he is 60 years, as per the scheme he will start receiving a pension of Rs 30,000 per month till 80 years and at the end of 80 years, he will end up with an additional corpus of Rs 60 Lakhs. To a naive investor, this means a return of 11% every year, but in reality the return is 8.27%!

Needless to say, Mr Sharma and Mr Agarwal looked shocked and a bit betrayed. Their hopes for a return of 11% went down the drain.

'Only 8.27%?' enquired Mr Sharma, 'but I pay Rs 11 Lakh and get Rs 1.32 Crore!' are you saying that this is just 8.27% return?' he enquired.

'Yes', I replied.

'Wow, I'm glad we met, otherwise, I was going to subscribe to the scheme tomorrow morning. It was on my agenda', remarked Mr Sharma.

'Well, you should always be questioning each and every investment opportunity. Like if you would have looked closely at the message, you would have noticed that you can't call back on the number, the message itself says, that you cannot send message to special number! Did you not wonder why the special number? Also, if you open the link, it specifically states that only people within 30-45 years age group can invest. The linked website looks gimmicky at best. No details, no about us, no past, nothing. 'The website (if we can call it that) is superficial and a trap at best', I explained.

'So, we need to let go of our dream of creating wealth and a huge corpus?' enquired Mr Agarwal grimly.

[Read More: Step-By-Step Approach To Retirement Planning]

'No', I replied. 'You don't have to give up on your dreams of retiring rich, neither do you have to be a 100% invested in equities, if you aren't comfortable', I continued.

The returns that the scheme guaranteed can be achieved in reality without using equities also. Let me show you...

Table 2: Creating a corpus with 100% Debt

Age Cash Inflow Cash Outflow Net flow Corpus Withdrawal Balance Corpus
30 - 36,000 -36,000 37,701 - 37,701
31 - 36,000 -36,000 78,735 - 78,735
32 - 36,000 -36,000 1,23,396 - 1,23,396
33 - 36,000 -36,000 1,72,004 - 1,72,004
34 - 36,000 -36,000 2,24,909 - 2,24,909
35 - 36,000 -36,000 2,82,490 - 2,82,490
36 - 36,000 -36,000 3,45,161 - 3,45,161
37 - 36,000 -36,000 4,13,372 - 4,13,372
38 - 36,000 -36,000 4,87,611 - 4,87,611
39 - 36,000 -36,000 5,68,413 - 5,68,413
40 - 36,000 -36,000 6,56,357 - 6,56,357
41 - 36,000 -36,000 7,52,074 - 7,52,074
42 - 36,000 -36,000 8,56,252 - 8,56,252
43 - 36,000 -36,000 9,69,638 - 9,69,638
44 - 36,000 -36,000 10,93,047 - 10,93,047
45 - 36,000 -36,000 12,27,364 - 12,27,364
46 - 36,000 -36,000 13,73,553 - 13,73,553
47 - 36,000 -36,000 15,32,664 - 15,32,664
48 - 36,000 -36,000 17,05,839 - 17,05,839
49 - 36,000 -36,000 18,94,321 - 18,94,321
50 - 36,000 -36,000 20,99,463 - 20,99,463
51 - 36,000 -36,000 23,22,737 - 23,22,737
52 - 36,000 -36,000 25,65,748 - 25,65,748
53 - 36,000 -36,000 28,30,238 - 28,30,238
54 - 36,000 -36,000 31,18,106 - 31,18,106
55 - 36,000 -36,000 34,31,420 - 34,31,420
56 - 36,000 -36,000 37,72,427 - 37,72,427
57 - 36,000 -36,000 41,43,577 - 41,43,577
58 - 36,000 -36,000 45,47,533 - 45,47,533
59 - 36,000 -36,000 49,87,195 - 49,87,195
60 - 36,000 -36,000 54,65,719 - 54,65,719
61 3,60,000 - 3,60,000 59,30,305 3,60,000 55,70,305
62 3,60,000 - 3,60,000 60,43,781 3,60,000 56,83,781
63 3,60,000 - 3,60,000 61,66,902 3,60,000 58,06,902
64 3,60,000 - 3,60,000 63,00,489 3,60,000 59,40,489
65 3,60,000 - 3,60,000 64,45,430 3,60,000 60,85,430
66 3,60,000 - 3,60,000 66,02,692 3,60,000 62,42,692
67 3,60,000 - 3,60,000 67,73,320 3,60,000 64,13,320
68 3,60,000 - 3,60,000 69,58,453 3,60,000 65,98,453
69 3,60,000 - 3,60,000 71,59,321 3,60,000 67,99,321
70 3,60,000 - 3,60,000 73,77,264 3,60,000 70,17,264
71 3,60,000 - 3,60,000 76,13,731 3,60,000 72,53,731
72 3,60,000 - 3,60,000 78,70,298 3,60,000 75,10,298
73 3,60,000 - 3,60,000 81,48,673 3,60,000 77,88,673
74 3,60,000 - 3,60,000 84,50,711 3,60,000 80,90,711
75 3,60,000 - 3,60,000 87,78,421 3,60,000 84,18,421
76 3,60,000 - 3,60,000 91,33,987 3,60,000 87,73,987
77 3,60,000 - 3,60,000 95,19,776 3,60,000 91,59,776
78 3,60,000 - 3,60,000 99,38,357 3,60,000 95,78,357
79 3,60,000 - 3,60,000 103,92,517 3,60,000 100,32,517
80 63,60,000 - 63,60,000 108,85,281 63,60,000 45,25,281
(For Illustration purpose only)

'As you can see from the above table, if you invest in a PPF/EPF/VPF fetching you around 8.5% per annum, you can earn a corpus of Rs 1.08 crore on the same investment, without taking any market risk! This money will be kept with your government backed company (my father and his friends work in a government undertaking), so zero chance of fraud' I explained.

'What happens if we split this between equity and PPF?', my father asked with a twinkle of greed in his eyes.

'Well, then you become super-rich, here's how...

Table 3: Creating a corpus with 50% - Equity & 50% - Debt allocation

Age Investment in MF Investment in PPF Total Corpus Withdrawal Balance Corpus Corpus - Equity Corpus - PPF
30 18,000 18,000 38,013 - 38,013 19,214 18,799
31 18,000 18,000 80,024 - 80,024 40,865 39,159
32 18,000 18,000 1,26,470 - 1,26,470 65,261 61,209
33 18,000 18,000 1,77,841 - 1,77,841 92,752 85,088
34 18,000 18,000 2,34,680 - 2,34,680 1,23,730 1,10,950
35 18,000 18,000 2,97,594 - 2,97,594 1,58,636 1,38,958
36 18,000 18,000 3,67,260 - 3,67,260 1,97,968 1,69,291
37 18,000 18,000 4,44,431 - 4,44,431 2,42,290 2,02,142
38 18,000 18,000 5,29,951 - 5,29,951 2,92,232 2,37,719
39 18,000 18,000 6,24,757 - 6,24,757 3,48,509 2,76,249
40 18,000 18,000 7,29,899 - 7,29,899 4,11,922 3,17,976
41 18,000 18,000 8,46,546 - 8,46,546 4,83,378 3,63,168
42 18,000 18,000 9,76,007 - 9,76,007 5,63,897 4,12,110
43 18,000 18,000 11,19,741 - 11,19,741 6,54,627 4,65,114
44 18,000 18,000 12,79,382 - 12,79,382 7,56,864 5,22,518
45 18,000 18,000 14,56,753 - 14,56,753 8,72,067 5,84,686
46 18,000 18,000 16,53,895 - 16,53,895 10,01,881 6,52,014
47 18,000 18,000 18,73,089 - 18,73,089 11,48,159 7,24,930
48 18,000 18,000 21,16,886 - 21,16,886 13,12,988 8,03,898
49 18,000 18,000 23,88,143 - 23,88,143 14,98,722 8,89,421
50 18,000 18,000 26,90,053 - 26,90,053 17,08,011 9,82,042
51 18,000 18,000 30,26,194 - 30,26,194 19,43,844 10,82,350
52 18,000 18,000 34,00,570 - 34,00,570 22,09,586 11,90,984
53 18,000 18,000 38,17,665 - 38,17,665 25,09,031 13,08,634
54 18,000 18,000 42,82,502 - 42,82,502 28,46,453 14,36,050
55 18,000 18,000 48,00,709 - 48,00,709 32,26,668 15,74,041
56 18,000 18,000 53,78,589 - 53,78,589 36,55,104 17,23,485
57 18,000 18,000 60,23,209 - 60,23,209 41,37,877 18,85,332
58 18,000 18,000 67,42,491 - 67,42,491 46,81,877 20,60,613
59 18,000 18,000 75,45,313 - 75,45,313 52,94,871 22,50,443
60 18,000 18,000 84,41,635 - 84,41,635 59,85,607 24,56,028
61 - - 3,60,000 84,41,635 65,02,280 24,58,110
62 - - 3,60,000 109,20,366 70,80,953 24,60,359
63 - - 3,60,000 117,36,194 77,29,068 24,62,788
64 - - 3,60,000 126,49,807 84,54,956 24,65,411
65 - - 3,60,000 136,72,932 92,67,950 24,68,243
66 - - 3,60,000 148,18,699 101,78,504 24,71,303
67 - - 3,60,000 161,01,816 111,98,325 24,74,607
68 - - 3,60,000 175,38,753 123,40,524 24,78,176
69 - - 3,60,000 191,47,956 136,19,787 24,82,030
70 - - 3,60,000 209,50,083 150,52,561 24,86,192
71 - - 3,60,000 229,68,271 166,57,268 24,90,687
72 - - 3,60,000 252,28,432 184,54,541 24,95,542
73 - - 3,60,000 277,59,586 204,67,486 25,00,786
74 - - 3,60,000 305,94,234 227,21,984 25,06,449
75 - - 3,60,000 337,68,776 252,47,022 25,12,565
76 - - 3,60,000 373,23,976 280,75,064 25,19,170
77 - - 3,60,000 413,05,493 312,42,472 25,26,303
78 - - 3,60,000 109,20,366 347,89,969 25,34,008
79 - - 3,60,000 117,36,194 387,63,165 25,42,328
80 - - 63,60,000 126,49,807 362,91,545 25,51,314
Total Additional Corpus at 80 years 388,42,859
(For Illustration purpose only)

'By following a conservative approach of 50% Equity and 50% debt, you can take home a pension of Rs 30,000 per month plus Rs 60 lakh as additional corpus plus a whopping Rs 3.88 Crore!' I explained to my father and his friends.

'So, it is possible for anyone to grow and retire rich?' Mr Sharma asked this time with no sarcasm and sans the usual mocking.

'Yes, all you need is a strategy and an honest financial planner. When it comes to creating a corpus of crores, honest advisors should be at the helm of the plan and strategy', I remarked.

As we concluded the discussion, we all simultaneously received a message which read, 'Why Depend on your family at the age of 60....', and we all broke out laughing loudly. As they say, 'Fool me once, shame on you, Fool me twice, shame on me'.

If you too are thinking about falling into such marketing mails and traps and wish to have an honest wealth manager that takes into account your ideology with wealth and shares your vision, look no further and connect with PersonalFN's Certified Financial Guardian on 022-61361200 or write to info@personalfn.com. You may also fill in this form, and soon our experienced financial planners will reach out to you.

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Till then, Happy Investing!

Author: Deepika Khude



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