In  issue 2  of Yours , Personally – The Financial Planning newsletter, we received a number of queries asking for financial planning advice. We have chosen queries at random, and provided mini solutions here. Personal details of the people who write in to us are kept strictly confidential and hence have not been given below.

1. Thank you for your news. Please advise me to invest in the best way as I am a senior citizen.
   
   SOLUTION:
   
   Dear sir,
   
   As a senior citizen who is presumably no longer employed / in a business, your main objective would be to receive a fixed monthly income.
   Before doing so, please ensure you have enough of a contingency fund set aside that can be used in any emergency. Around 6 to 12 months of living expenses is enough. This can be maintained in liquid funds or in a "sweep in savings account" facility with your bank.
   To receive a fixed income from your investments, you can opt for the Post Office Monthly Income Scheme. It provides assured returns of 8% per annum, paid out on a monthly basis. The investment limit is up to Rs. 4.50 lakhs for a single account and Rs. 9 lakhs for a joint account. You will also receive a 5% maturity bonus on completion of the investment's 6 year tenure.
   
   You can also opt for the Senior Citizen Savings Scheme (SCSS). You can invest up to Rs. 15 lakhs and receive a return of 9% per annum. The tenure for this investment is 5 years which can be extended by 3 more years. Interest is paid on a quarterly basis – on 31st March, 30th June, 30th September and 31st December. Investments into the scheme are eligible for tax benefit under Section 80C, however interest is fully taxable. Please note, there is a premature withdrawal penalty, depending on when you prematurely withdraw your funds.
   
   If you are willing to take a little risk, you can opt for a corporate FD of a 1 year horizon, offering around 7.50% - 8.50% per annum. However this is riskier than a small savings scheme and is also taxable. It is not advisable to have a high equity exposure in your portfolio once you are retired. Ideally you should not take any risk on your retirement corpus.
   
   Wish you all the best with your financial planning!
2. In yr article on rediff a couple of days ago, you have proceeded on the assumption that pre-payment will reduce the total amount of interest payments. I write to seek confirmation that this is correct, for I had assumed otherwise so far from the repayment schedule of a 20-yr loan from ICICI. Let me explain.
   
   The early payments, say first year, are more of interest and less of principal. Subsequent years EMIs show, as per table given by ICICI, gradually reducing levels of interest until almost all the interest is paid off from the EMIs of approx first 5 years, with reducing tax benefits accordingly. At the time of taking the loan, when I questioned the bank rep, I was told this is the way it is done because, in the event of pre-payment or any other unforeseen eventuality, the bank would have recovered all or almost all of the interest on the loan.
   
   If the bank is able to lay down allocation between interest and principal for EMIs throughout loan duration, how will some substantial pre-payment reduce the interest element for the loan as a whole, when the bank will claim that the interest has already been paid, and now only the remaining principal can be repaid?
   
   Have I (a) understood the agreement wrong, or (b) is what I was told wrong? If you are right in asserting that the interest liability will be proportionately reduced by prepayment, then either (a) or (b) above has to be correct. Could you please clarify.
   
   SOLUTION:
   
   Dear sir,
   
   As was mentioned in the article, any prepayment done by you would reduce the future interest payments because it will reduce the amount of principal on which you need to pay interest. Prepayment will always refer to a prepayment of the principal component of the loan. Due to the principal component reducing, the interest payments in coming months and years will reduce
   
   Additionally, banks do structure their loans the way it was indicated by your bank representative – high interest payments first and higher principal repayments later. This is why it is much more beneficial to prepay the loan in the earlier years rather than in the last few years. However that does not mean that it is not at all beneficial to prepay in the later years – it only means it is still beneficial, just not as beneficial as prepaying earlier.
   
   Hope this clears your query. If you have any further clarification required please do contact us. We would be happy to assist.
   
   Wish you all the best with your financial planning!
   
   
    
3. Dear Sir,
   
   Recently I have been father of a lovely and beautiful girl child. My Monthly income is Rs.30000. My saving is around Rs. 5000 distributed into several instruments. Now I have extra Rs.3000 per month which I can invest into others investment avenue. I am regular short term trader at Stock Market despite of being a service holder. I already have EPF, PPF, MF(SIP), Stocks, LIC, Mediclaim, Bank FD. Should I go for Bond, Gold and KVP? Please guide.
   
   SOLUTION:
   
   Dear sir,
   
   First and foremost – Congratulations on your lovely child! It is very good that you are planning for her goals right away – you will give your goal investments the gift of time!
   
   Our recommendation would be to first assess how much you will require for each of your daughter's goals – and then invest accordingly based on the goal time horizon and your personal risk appetite. Our article above would help give you an idea of various goals and amounts that may be required.
   
   You appear to have diversified your portfolio across different asset classes and instruments – diversification is good for your portfolio, however it is important to maintain your asset allocation. Depending on how far away your life goals are, you can opt for a higher allocation to equity if the goals are further away. This would indicate where you should channelize your additional monthly savings. You can choose well respective mutual fund houses and opt for diversified equity schemes with a long standing track record.
   
   Wish you all the best with your financial planning!
   
   
    
4. Dear Sir
   
   I retired from a large PSU after holding a very senior position and am presently serving a private sector company with annual package of approx INR 24 Lk ( taxable ). I will turn 64 in March' 2011 and will not like to serve anymore. My children are well settled and me and my wife stays in our own house. Our medical needs are taken care by a scheme fully for which I need to pay only Rs 2500 per year. Our monthly expenses are average Rs 50,000. At present we together have following investments
   
   1. Post Office Sr citizen scheme 30 Lk. ( 9% quarterly payment )
   2. Post Office monthly payment deposit 09 Lk ( 8% monthly payment )
   3. Bank FD - 2years 20 Lk
   4. Bank FD - 1 year 20 Lk
   5. Bank saving account 05 Lk
   6. Mutual Funds debt oriented 04 Lk
   7. Mutual Fund small/ mid cap 04 Lk
   
   Kindly advise whether my investment is in order to sustain current standard of living even after leaving the job. I shall be obliged for advising corrections required to get better returns considering my age.
   
   SOLUTION:
   
   Dear sir,
   
   Assuming current inflation rates, in order to maintain your current lifestyle costing Rs. 50,000 per month, you would require a corpus of approximately Rs. 1.50 crore assuming a life expectancy of 85 years. By the end of the 85th year, this corpus would be exhausted. Your current corpus is Rs. 92 lakhs, invested mainly in fixed income instruments. By March 2011 taking into account future (post tax) income and future expenses, your corpus will grow to approximately Rs. 96.50 lakhs.
   
   Considering these details, upon retirement you have the following options:
   
   a. Rationalizing expenses by 30%
   
   b. Taking slightly higher risk on your investments for higher returns.
   
   If you were to opt for option b i.e. taking higher risk on your investments than what is recommended, you can consider options such as corporate FDs and mutual funds which have a small component of equity exposure such as MIPs (monthly income plans). If you go for MIPs please remember to invest for the longer horizon of approximately 3 to 5 years for better returns and to give the equity component of the MIP a chance to perform.
   
   It would be advisable for you to have a Retirement Plan done for yourself from a Financial Planner which would give you a more precise picture rather than taking only broad details.
   
   If you have any further clarification required, please do contact us. We would be happy to assist you.
   
   Wish you all the best with your financial planning!

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Comments
axel.rupprich@td-fuerth.de Feb 25, 2012 I can see that you are putting a lots of efforts into your blog. Keep posting the good work.Some really helpful information in there. Bookmarked. Nice to see your site. Thanks!
florianova11@seznam.cz Oct 15, 2013 The expatriate shines through. Thanks for taking the time to answer.

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