As it is said there are two unavoidable events of human being's life cycle : Death & Retirement. Although we can not really predict the first, we can really foresee our retirement and plan for it.However, retirement, although the most important and unavoidable event of life, it mostly remains unplanned due to other priorities in life. We plan for all important events of life - be it buying a home, planning for kids marriage, but fail to plan for this most challenging part of our life-stage . We all need to retire in peace and when asked we all would like to have a happy retired life but without quantifying the same in financial terms definition of 'HAPPY Retired Life' remains very vague.

But before we go ahead and discuss about how to go about retirement planning and things to consider, lets try to understand at first as to why do we need retirement planning.

Compared to yesteryears during the period of high interest rate region planning for retirement was much easier with fixed income products offering interest rates as high as 12-13%, which have gradually come down now and expected to fall further in future. Against this, life expectancy of an average Indian has gone up with medical advancement. Now aspirational levels have gone up as people want to fulfill their dreams and hobbies during their retired life, which they were unable to do during their professional life. Let us summarize the Why factor of retirement planning as under:

• Falling interest rates (Interest rates on fixed income products have now become market linked and have come down considerably in last one decade or so).
• Aspirational levels are going up with more and more people wanting to pursue their hobbies/dreams during their retired life.
• Change in social structure with growing urbanisation, trend of nuclear families with children often staying away from parents.
• Higher life expectancy due to advancement of medical science.
• Ever increasing medical cost and 78% of total health expenditure is privately funded.
• The most important factor: Inflation

Among all, inflation can be considered as the most important factor affecting retirement planning with ever increasing cost of living for developing country like India. With an average inflation rate of around 7%, your monthly expense of around 25000 can grow to around 1 lakh in 20 years time and close to 2 lakhs in next 30 years.

(Inflation assumed @7%)
As can be seen from the above graph just to maintain the same standard of living for a family with monthly expense of .25000 one would require 1 lakh per month after 20 years. Again this is just with an assumed inflation of 7%.

This was about the importance of retirement planning. Now another important question to be answered is how much retirement kitty should one have? Although there are no simple answers to this as there is no single figure that can apply to all. Every individual has to calculate on his/her retirement corpus requirement after considering the following important factors:

• The age at which one needs to retire.
• His/her current life style. (Mainly monthly expense)
• Assume realistic rate of return during your working life as well as during the retired life.
• Rate of inflation
• Consider any of your current retirement savings plan (pension plans, insurance, provident funds etc)
• Any specific dream/hobby one likes to pursue during retired life.

(Note: Assume that the above list is not comprehensive and just for example purpose. One needs to consult his adviser to do know about retirement planning process)

After assigning specific numbers to all the above questions one can arrive at retirement corpus required and then arrive at investment required to be made with the assumed rate of return.

The idea of retirement fund is that the money should last for all of our retirement years, meeting our expenses. The income from kitty and withdrawals from later years should match the expenses (growing with inflation) in post retirement years.

This is very critical, since with better medical services, average retirement years have increased and it is possible that a person retiring at say age 60 would easily have nearly 30 years as retirement. Developed countries have higher life expectancy, something India will sure achieve in the next coming decades. The criticality can be very simply understood by acknowledging that we may normally have 35 working years (age 25 to 60 years) in which we have to save for the 30 retirement years (60 to say 90 years) when we will not be working. Thus it is very critical that we realize this requirement and start planning immediately. Ever increasing cost of living will only add to our misery during retirement years when we mainly have to rely on our savings without having any major source of additional income.

Be vigil and open for course correction:
To arrive at a retirement corpus is just first stage of planning process. As we all go through different phases in life it is very important to keep one self open to make necessary changes on a regular basis. Major life events which require modifications in retirement plan are:

• Change in employment status ( One can increase contribution with promotion/increment in job)
• Change in family status (Getting married, arrival of a child etc.)
• Change in tax laws
• Getting any lump sum financial benefit through inheritance

Retirement Planning Options Available:
There are different retirement benefit solutions available in the market like insurance products aimed retirement benefits, planning through SIP in equity mutual funds, pension plans, employer sponsored retirement benefits etc.

As retirement planning is mostly done with long term investment horizon of above 5 years it should ideally be done by getting maximum exposure to equity as an asset class as over long time horizon equity has the potential to outperform all other asset classes. Investing systematically on a monthly basis through SIP route in equity mutual funds can benefit investors by taking advantage of power of compounding. Although one is always advised to keep his/her asset allocation in check to make sure that one does not overboard on a single asset class.

Another idea is to create assets that will give returns post retirement, like property, which can be put on rent or land which can be farmed, etc.

Conclusion: Retirement planning is an ongoing, lifelong process which requires commitment, patience and consistency on part of investors to reap rich dividend of final payoff of retirement kitty. No matter how big retirement corpus requirement may look like, one needs to start at some stage no matter how small that start may be. So don't wait for the right opportunity or the right time to come as the right time is NOW to make your retired life comfortable.

Financial literacy is regarded as an important requirement for the effective functioning for any economy and society. Over the years, financial literacy ensures supports social inclusion and enhances the well-being of our communities. While financial inclusion is the primary criteria while evaluating the level of development & progress of any economy, true financial independence cannot prevail in absence of literacy. In this article, we shall be taking a closer look at what financial literacy truly means and the advantages of it.

What is financial literacy?
Financial literacy refers to the ability to make informed judgments and to take effective decisions regarding the use and management of money. It thus includes the awareness, knowledge and skills to make decisions about savings, investments, borrowings and expenditure in an informed manner. In other words, financial literacy would mean that you understand the risks & rewards associated with every monetary decision and are also aware of the other options available to you.

Signs of financial illiteracy:

• Lack of awareness upon the need and importance of various financial services/ products.
• Lack of access or knowledge as to how to access to services/products
• Lack of knowledge and understanding of financial services/ products
• Inability to 'rightly' chose between alternate financial services/ products
• Inability to make proper assessment of the present & future financial situation
• Inability to understand the risks & rewards of any financial decision

Why financial literacy is needed?
The need for financial literacy is felt in developed and developing countries alike. Even if you have financial inclusion wherein you have easy and fair access to banking, investment and credit products, the real benefit can only be enjoyed if you are financially literate. There are many cases and even high chances that in absence of proper knowledge, one can be exploited by intermediaries and manufacturers, alike, leading to grave financial loses or crisis. In a world with growing financial inclusion, rise in number and complexity of financial products and a need for financial independence, financial literacy has become a must for everyone.

From a regulatory perspective, financial literacy empowers the common man and reduces the burden of providing protection and even grievance redressal to the common man by the regulators. It thus makes the entire financial system more efficient, disciplined and progressive. Financial literacy not only marks an improvement in the quality of life but also on the integrity & quality of the markets.

Who needs financial literacy?
Financial literacy is for anyone who has somthing to do with money. Thus, there is no one who doesn't need it since all of us are either engaged in earning, borrowing or spending money and do take financial decisions in our daily lives. Perhaps only infants, lunatic, godly men or old age dependents may be excluded from this group.

The focus of this article is on financial literacy that relates to you and your family members. Financial literacy is important for you, your spouse, parents and even children. Though one may argue upon the level and depth of the financial literacy knowledge required between different groups, an overall understanding is a must for all. With financial literacy, we have the following advantages

• Clarity of financial concepts and terms
• Making better financial decisions related to savings, investments, borrowings, etc.
• Accessing financial products & services easily, without fear or prejudice
• Building assets and wealth over time, leading to better financial health
• Overcoming vulnerability and avoiding exploitation by people around us
• Planning towards economic security to self and for family

Components for Financial Literacy:
The next question that arises is to what does financial literacy comprise of? You, most probably, may consider yourself as financially literate but may not be able to clearly outline the required knowledge surrounding it. We are presenting the broad outline to test oneself on financial literacy.

The following together can be considered as comprising financial literacy for any individual.

The above may seem to be a very comprehensive outline but the idea is to cover all the major aspects of money that one has to deal in their lives. While detailed knowledge may not be necessary under each heading, one should however have the broad conceptual understanding of the idea and/or knowledge of options, as the case may be.

Conclusion
Financial literacy is the primary step for financial inclusion since introspection changes behavior which in turn makes people seek and receive financial services and products. Financial literacy can lead to financial wisdom and financial independence in knowledge. It will give the ability to manage money not just deal with it and to use skills & knowledge to take wise decisions for the future.

We advise all our readers to ensure that they are 'financially literate' in the truest spirit. We also encourage all the readers to make their family members, especially spouses, parents and growing children financially literate. One may use the outline shared to impart such knowledge. Indeed it would be a great learning for anyone that would otherwise take great time & experience to gain. This would help increase the economic space, self esteem and the confidence level of any individual and make him/her ready to easily engage in the mainstream of the financial systems.

Emotions is what makes us human. Unfortunately, emotions also make us bad investors. As a powerful force, emotions has the strength to often shadow intelligence, rationale and logic. And as investors, it does hurt us. It also drives our investment decisions most of the time, knowingly or unknowingly.

THE CYCLE OF MARKET EMOTIONS :

Markets tend to be more like ECG graphs in the short run while behaving like weighing scales in the long run. No one can actually predict what is going to happen in the short run but we mostly have a fair idea of where the markets are headed over long run. The short run for equity markets can be described as anything less than say 1 to 3 years of time, it can be days or months together. The long run will be say over 3 to 5 years. The longer the period, the better can be the predictability of growth trends and markets. A real problem arises when we observe sharp market behaviour in relatively shorter period of time, stroking the emotions within us. As market moves up and down, the emotions within us change. The worrying part is that these emotions are the opposite to what rational logic would suggest at different peaks & bottoms of the market cycles. Have a proper look at the image below which shows how the emotions of an average investor plays out in response to market movements.

THE UP JOURNEY :

At the time of beginning our investments, we feel optimistic about the future and decide to invest for the long run. Slowly, we as see the markets rising, we are more excited and thrilled. At this time we often also invest more money hoping the trend will continue. When it does, we feel euphoric as if we have really achieved something.

THE DOWN JOURNEY :

However, as the market cycle reverses,we at first are a little worried but we assure ourselves that the trend will be temporary. When it falls further, we deny any down cycle but we begin worrying about investments while continuing to hold them as long-term investors. Slowly, as market falls, we start fearing and then end up panicking when our profits have wiped out and investments are at big loss. We keep hearing and accumulating all the negative news around us and we feel the decision to invest was wrong and it would be now wise to stop our losses by selling – just like everyone else. When the markets reach the bottom, we fell we have made the right decision.

THE RISE AGAIN:

Slowly rationality and logic sets in and there is reversal of the trend after the bottom has been hit. We feel a bit disappointed as the market rises above the levels we have sold. Uncertain of the market direction, we decide to wait and watch. Slowly, as markets rise, our sentiments change from doubt to hope to optimism. After markets have risen well, we feel confident again in future to enter markets. We take our past experience as a lesson in investing and then invest again for long-term. Waiting for the history to repeat itself.

SAYING NO :

What we have learnt from history is that people do not learn from history. The saga of market cycles and emotions continues to play every time and the same herd behavior is often seen in the markets. Investors often jump into investing after seeing very attractive returns already made by others who invested much earlier. And when there is a fall, most are not matured and patient enough to see notional losses in their portfolio and react by selling.

Time in the markets rather than timing is what really matters in the markets if we want to make big returns. But to do this successfully, we have to control our emotions. Most of us are intelligent enough to make right investment decisions but do not have the temperament to carry it through. Dravid, perhaps the greatest middle over batsman from India, was able to survive the most challenging oppositions in foreign soils more because of his steady mind. He did not allow himself to get carried away even after tough sessions of low scoring or falling wickets. He is today remembered for that temperament and discipline.

THE KEY :

The secret of success in investing is known to everyone but practiced rarely. It is about being rational and logical when others are being emotional. It is about avoiding hear behavior by investing when others are selling and being grounded and rational when others are euphoric. Let us remember this simple behavioral aspect of investing and we will be good enough for being successful than a big majority of other impatient investors in the market. Let us hold steady and stay on the crease for long.

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful - Warren Buffett

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Today you have many options for investment. In fact the options are so many that one often feels confused as to which is the ideal one! Most of us are also unsure of what important parameters to consider before choosing an option. We often consider a few important parameters but ignore a majority of the same. This article shares with you the important parameters that you may consider evaluating before making any investment decision. Please note that we are not considering important personal parameters like risk appetite, asset allocation, etc. here but only looking at parameters from investment product point of view.

Time Horizon:
Time is of essence and among the most important determinants for any investment decision. You may easily classify your investment time horizon into different categories like for eg. (i) very short term; less than 3 months (ii) short term; 3 to 12 months (iii) medium term; 1 to 3 years (iv) long term; 3 to 10 years (v) very long term; beyond 10 years. As your time horizons increase, the risk nature of investments can increase from money market instruments to short term debt to long term debt and then increasing portions of equity. Ideally, for a long duration and a growing economy like India, equity asset classes offer much greater scope of wealth creation.

Real Returns:
While evaluating returns expected from any investment, we often only look at the returns mentioned or expected. However, we fail to take into consideration factors like inflation and taxation upon these returns. As smart investors, we should always look at Post Tax – Real Returns from any investment. To arrive at this is very simple. Firstly, take the 'gross' returns from an investment – say 8% for 1 year on Bank FD and deduct taxation from this. Eg. If your applicable tax slab is 30% and the interest returs are taxable then the post-tax returns are 8% less 30% or 5.60%. After post-tax returns, the next is adjustment for inflation or price rise by deducting inflation from post-tax returns. Thus, if the inflation is at say, 8% today, then the post-tax, real returns will be 5.60% less 8% or negative 2.4%. Thus, the our investment, as given in example, in reality is going to give you a negative real returns on post-tax basis. This is the recommended method to evaluate any returns for any investment.

Investment Risks:
Investment risks are of many kinds and would arise from (i) markets (ii) nature of asset class (iii) product provider / manufacturer (iv) financial and regulatory environment (v) political climate, etc. Given the nature of asset class, like physical, equity & debt, the risks would vary in nature. Equity risks are mainly market, company & sector driven. Debt risks are generally in nature of credit risk, liquidity, reinvestment, etc.

Tax Considerations:
There are four instances where tax incidence has to be evaluated. First – at time of making investment if the investment is eligible for rebate or deduction. Typically such investments would fall under section 80C, 80D, etc. Second incidence would be the taxability of the income generated from your investments. Income can be broadly in form of interest or dividend income. Third incidence would be that when any investment is redeemed or sold. In such a case, the capital gains , long term or short term, would need to be calculated, depending upon the investment horizon. Fourth tax incidence is that of Wealth Tax, which is more relevant of high networth individuals. Investments can offer tax benefits to you on any combination of these tax incidences. A smart investment decision would be one which will give the best tax benefits and minimum tax liability from your investment.

Liquidity:
Investments can be futile if one is not able to liquidate it at times of need or emergency. Surely, life is uncertain and we would not like our investments to be blocked and unavailable when we need it. Liquidity would mean that you can get your investments back easily, within short period of time and without incuring incurring too much of cost or sacrifice of value while redeeming. An investment option offering high liquidity is preferred since one may not only need it at times of emergency but also to make best use of any investment opportunities that may crop up at any point of time. However, having said this, as investors we should be disciplined enough to not liquidate investments often for non-critical or general expenses every now & then just because we can do so.

Costs:
Different investment products have different types of costs attached. Generally, any investment would have any combination of following three types of costs (i) at time of investing new or additional money (ii) during period when investment is active as percentage of investment value or fixed fees (iii) at time of exiting or withdrawing money. Typically we can mention these costs as entry load / expense / exit load. The costs may be calculated as percentage of amount or a fixed sum of agreed fees. Further, costs may be levied for distribution, transaction services or advisory services. There would be also also be costs while making service or operational requests, which are beyond the normal investment costs. Over time, the costs in many products have fallen but still costs are a major factor to consider when one is investing large amounts in products like PMS scheme, liquid funds, insurance products, etc.

Suitability:
There are customised products available in market directed for specific purposes like pension, retirement, wealth creation, safety of capital, child education, etc. Being clear with your investment objective can also be an imporant factor while considering different options. It is however important to be careful since just naming products after some life goals need not necessarily qualify as good investment for that purpose. You may need to weigh small unique features that such products offer before comitting your money.

Convenience & features.
With improving lifestyle and penetration of technology in our daily lives, we would prefer investment products that can be viewed & managed online. While most financial institutions are now increasingly offering such services, off lately, even government schemes & plans have begun such services. Further, one may also like to evaluate other facilities like nomination, third party transferability, loan facility, acceptability as security for loan by financial institutions. While these options may not be of very critical, it can however be a differentiating factor for persons who intent to use these options.

Often the investment decisions made are not based on careful thinking or evaluation on all these parameters. Decisions are majorly influenced by opinions of close friends, influencial persons in family, recommendations by agents, brokers and even by smarter marketing by companies. Evaluating investment options independent of these influencing factors on the parameters given above can most definitely lead to long term financial well-being. If you are not in position of to evaluate these factors yourself, you can surely ask your financial advisor these questions when required. After all, being wealthy in life is not just about making the best investment decisions but also about avoiding bad decisions.

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