The need to
have a contingency/emergency fund
The need for insurance
The need to purchase assets such as a house, a
car etc.
The need to save for retirement.
o
Need to have adequate health insurance cover for
the family to meet medical emergencies.
o
Need to provide sufficient funds for
children’s higher education and
marriage- child insurance plan can address this need.
Ø
Child insurance plans come in two varieties-
risk averse investors can choose child endowment plans, whereas investors who
a=re willing to take the risk can choose child ULIPs with an equity fund.
Ø
Need to have a regular income or an annuity
after retirement. Insurance companies
provide retirement plans to address this
need. An individual can invest a lump
sum amount, or during their working life they can make regular contributions
towards them.
Ø
Purchase assets like a house, car etc
Ø
The bank offers a percentage of total value of
the asset as loan and rese amount has to be paid by the individual called down
payment, margin money or home owner’s equity
Ø
Retirement-
o
To have a sufficient/ regular source of income
once they retire. Depends on the lifestyle that an individual needs to maintain
with the cost of living during their retirement.
o
It can be partly addressed by investing in a
retirement/pension plan from an insuranc e company after early age.
o
For working professionals retirement needs are
partly addressed through the retirement benefits that their employer provides
retirement, i.e. gratuity, employee provident fund (EPF) and pension.
o
Gratuity is an employee benefit paid by the employer to the employee for the services
rendered by the employee to company.
o
To be eligible for a gratuity the employee must
complete give years of continuous service. Amount of gratuity is calculated based
on number of years for service rendered
be the employee to company.
o
Gratuity eligibility, calculation, payment and
tax treatment are defined by payment of gratuity act 1972.
Ø
Tax planning
o
While investing to fulfil these needs one should
select investment products which make optimum use of income tax deductions.
o
Tax benefit should be considered to be an
additional benefit and not the primary one
o
Difference between short term/medium term &
long term needs
o
Short-term needs-funds required within a period
of 1-5 years
§
Short-term needs include saving for emergencies
etc.
o
Medium-term needs-funds required within a period
of 5-15 years
§
Medium-term needs include savings for children’s
education, marriage etc.
o
Long-term needs-funds required after more than
15 years
§
Long-term needs include retirement planning.
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