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LIFE INSURANCE

Retirement planning stands as the linchpin of a comprehensive financial strategy, embodying the foresight and prudence required to ensure a secure and comfortable future. In the intricate tapestry of personal finance, where myriad threads intertwine to form a stable foundation, the emphasis on retirement planning cannot be overstated. This article delves into the significance of retirement planning, shedding light on why it holds the paramount position in the realm of financial preparedness.

IN THE DYNAMIC LANDSCAPE OF INDIA, WHY THE CONCEPT OF RETIREMENT HAS UNDERGONE A SIGNIFICANT TRANSFORMATION?

1. With an increasing life expectancy that is projected to reach 82 years by 2035, individuals are confronted with the need to plan for a retirement period that may span 25-30 years.
2. The traditional joint family system is dissolving, and the onus of financial well-being during retirement is shifting more onto the individual.
3. Inflation’s Erosive Effect: Inflation erodes the purchasing power of money over time. Retirement planning involves factoring in inflation to ensure that the accumulated corpus not only maintains its value but also grows to meet the escalating costs of living.

TO TACKLE MOST OF THE THE RETIREMENT PLANNING CHALLENGES, HERE’S THE SOLUTION

Introducing TATA AIA Fortune Guarantee Retirement Ready Plan – Your Pathway to a Secure Retirement. This non-linked, non-participating pension plan is meticulously tailored to prepare you for your golden years, ensuring you experience a fulfilling and worry-free retirement. With its unwavering commitment to guaranteed benefits and an array of enticing features, this plan empowers you to savour life to the fullest.

“Retirement isn’t the end; it’s the gateway to an endless highway of Possibilities”

FGRR Plan Option 1 - My Pension (Single Life), Vesting Benefit Receiving Option: Systematic Pension Structure without Return of Premium

*All premiums excl. taxes for males, standard life, age 35 Years, Premium Payment Term 6 Years, Income Start Year 12th, Income Term 20 Years Guaranteed benefits depend on entry age, Premium Payment Term, Policy Term, and Premium Amount.

KEY FEATURES OF THE PLAN

• Tax-Efficient Guaranteed Retirement Corpus
• Systematic Pension Structure for Regular Income
• Partner Cover with Joint Life Option
• Rupee cost averaging by purchasing annuities at different point of time
• Special Discount for young customers and women
• Flexible Policy & Premium Payment Terms
• No Medicals Required

ELIGIBILITY CRITERIA: FORTUNE GUARANTEE RETIREMENT READY-SYSTEMATIC PENSION STRUCTURE

HOW THE PLAN WORKS

A Perfect Solution for Long-Term Guaranteed Income through SYSTEMATIC PENSION STRUCTURE (SPS) Option.

Ram is a working professional aged 40 years. He invested in Tata AIA Fortune Guaranteed Retirement Ready Systematic Pension Structure by paying Rs. 7,30,000 p.a. for a period of 7 years and 2 years deferment where he gets a vesting benefit of Rs. 4,51,291 p.a for next 35 years.

(Total Vesting Benefit received Rs. 1,57,92,891)

“So as you plan for retirement, don’t forget the importance of insurance. It can be your financial partner, ensuring that your retirement years are filled with relaxation and financial security”

GENERAL INSURANCE

Introducing the Reliance Health Global Plan – a comprehensive worldwide health insurance policy. This plan ensures global coverage, allowing you to access top-tier medical facilities across the world with the convenience of cashless transactions. Offering a substantial sum insured of up to $10 Lakhs on a global scale, and an unlimited sum insured within India, it provides extensive coverage for you and your family.

GLOBAL - HIGHLIGHTS OF THE PLAN:

• Inpatient Care - Include Ambulance & Organ Donor with Sum Insured
• Pre & Post Operative Day Care Treatment - Within Sum Insured
• Pre & Post-Hospitalization - 15 days for Pre & 30 Days for Post within Sum Insured
• Second Opinion - Within Sum Insured
• Visa Charges & Documentation - Within Sum Insured
• Travel Expenses for Insured & Companion & living Donor - Worldwide incl US/Canada up to $7000 within SI & Worldwide Excl US/Canada up to $3000 within SI
• Accommodation Expenses - Worldwide incl US/Canada up to $350 within SI & Worldwide Excl US/Canada up to $250 within SI
• Rehabilitation - $2300 within SI

INDIA- HIGHLIGHTS OF THE PLAN:

• Inpatient Care - Incl Consumables within Sum Insured (any Room Category)
• Day Care Treatment - Incl Consumables within Sum Insured (any Room Category)
• Pre & Post-Hospitalization - 90 days for Pre & 180 Days for Post within Sum Insured
• Domestic Road Ambulance - Within Sum Insured
• Air Ambulance - Within Sum Insured
• Health Check-up - Up to Rs 10,000 every 2 years, starting at the beginning of year 2
• Domiciliary Hospitalization - Within Sum Insured
• Home Care Treatment (Max 15 Days) - Rs 25 Lacs within Sum Insured
• Organ Donor Expenses – within Sum Insured
• Modern Treatment Expenses – within Sum Insured
• Second Opinion - Rs 5,000 within Sum insured
• Unlimited Reinstatement- Unlimited reinstatement of India Base sum on related/Unrelated illness/ Injury
• No Claim Bonus - 25% increase in India Base SI of Every Claim free Year, Max up to 100% of the Base SI, and 25% decrease for every Claim year

PRODUCTS COMES WITH OPTIONS OF FOUR PLANS

HOW MUCH IT COST?

FIXED INCOME

The financial terrain has undergone a noticeable transformation, especially since late March of the preceding year, marked by a considerable upswing in equity markets. Noteworthy indices like Nifty 50 and BSE Sensex has reached unprecedented heights, yielding returns of around 20% throughout the year 2023. This significant upturn in the equity market has led to an expansion of investors’ equity holdings, evoking a dual sentiment of both excitement and apprehension regarding future prospects.

Given the existing market dynamics, it is sensible for investors to conduct a thorough assessment of their investment portfolios. This scrutiny becomes especially vital in light of the heightened levels of equity holdings, necessitating a careful examination of the overall portfolio composition. It is at this juncture that a thoughtful consideration of fixed-income assets becomes relevant.

Fixed-income assets, encompassing instruments like bonds, debt securities, and corporate FDs, are recognized for their stability and consistent income streams. Given the escalated volatility and potential uncertainties in the equity markets, allocating a larger portion of your portfolio to fixed-income instruments can serve as a hedge against market fluctuations. This is particularly pertinent for investors who have observed a significant uptick in their equity holdings over the recent period.

For those who haven’t explored debt instruments extensively, now is an opportune time to delve into and initiate investments in this asset class. Fixed-income investments, characterized by their steady income generation and relatively lower risk profile, can contribute to a well-balanced and diversified portfolio. This diversification is crucial for managing risks and establishing a more resilient investment strategy.

Moreover, the current economic environment provides certain incentives for embracing fixed-income assets. The stability in the equity markets and the potential for market corrections make fixed-income instruments an appealing option for investors seeking consistent returns with reduced exposure to market volatility.

MAXIMIZING RETURNS THROUGH STRATEGIC FIXED-INCOME INVESTMENTS

The backdrop for potential profits from fixed-income investments lies in the prevailing interest rate scenario, particularly the notable increase in interest rates over the period of 2022-23. The Reserve Bank of India (RBI) implemented a series of rate hikes, totaling 250 basis points during this time frame. As a result, the repo rates currently stand at 6.5%. This decision by the RBI to pause rate hikes signals a deliberate approach to monetary policy, considering various economic factors.

The last repo rate hike occurred in February 2023, suggesting a cautious stance by the RBI amid the evolving economic landscape. In June 2022, the 10-year government security (g-sec) reached a closing high of 7.55%, indicating the yield on these securities. Although there was a brief spike in March 2023, attributed to challenges faced by Silicon Valley Bank, the Indian 10- year g-sec has generally stabilised within the 7.1-7.4% yield band.

Understanding the RBI’s approach is crucial for investors looking to profit from fixed-income instruments. The central bank remains hawkish on inflation, emphasizing its commitment to maintaining price stability. In addition, the RBI is focused on addressing any excess liquidity in the financial system. This dual commitment implies that, in the near term, the central bank is not likely to reduce interest rates.

This persistence in maintaining current interest rate levels becomes the foundation for potential profits in fixed-income investments. When interest rates are high and are expected to remain so, fixed-income instruments, such as bonds, tend to offer attractive yields. Investors can capitalize on this by investing in these instruments, locking in higher returns compared to periods of lower interest rates.

The stability in the yield band of 7.1-7.4% for the 10-year g-sec suggests a relatively consistent environment for fixed-income investors. The expectation that rates are not likely to decrease soon provides a window of opportunity for investors to lock in attractive yields by holding fixed-income assets.

The suggestion to lock into high accrual income by holding bonds till maturity and considering higher duration in the portfolio stems from the observation that interest rates and yields have reached their peak. This strategic move is supported by several factors that warrant a more detailed understanding.

1. Peaked Interest Rates and Yield Curve: The statement implies that interest rates and yields, which move inversely, have reached their highest point. This suggests a potential turning point in the interest rate cycle. In such a scenario, holding bonds until maturity becomes advantageous as investors can secure the prevailing high yields throughout the bond’s term. Moreover, extending the duration of the portfolio is deemed attractive from a risk-reward perspective. A higher duration positions investors to benefit from any potential future rate cuts and navigate the yield curve effectively. This strategy aims to capitalize on the inverse relationship between bond prices and interest rates.
2. JP Morgan Bond Inclusion: The inclusion of Indian Government Bonds (IGBs) in JP Morgan’s Government Bond Index- Emerging Markets (GBI-EM) index is a significant development. This process, starting from June 2024 and continuing until March 2025, involves a gradual increase in the weightage of IGBs in the index. Starting at 1% in June 2024, the weightage will incrementally rise by 1 percentage point each month, reaching a substantial 10% by the end of the 10-month period. This inclusion is noteworthy for multiple reasons. Firstly, being part of a major global bond index enhances the visibility and attractiveness of IGBs to international investors. Secondly, the phased approach to the inclusion allows the market to adjust gradually, reducing potential shocks. Lastly, the expected 10% weight in the JP Morgan bond index is anticipated to attract significant inflows, estimated at $20-30 billion. This influx of foreign investment could have a positive impact on bond prices, potentially leading to a decrease in yields.

INCREMENTAL INFLOW AND BOND MARKET DYNAMICS:

Building upon the $330 billion base of the total outstanding value of eligible Indian Government Bonds (IGBs), the anticipated incremental inflow of $20-30 billion from Foreign Portfolio Investors (FPIs) carries significant implications. This additional foreign investment is expected to have a positive effect on bond prices, potentially leading to a lowering of yields in the future.

The logic behind this lies in the basic economic principle of supply and demand. An influx of funds into the IGB market, represented by the $20-30 billion incremental inflow, increases demand for these bonds. In response to heightened demand, bond prices tend to rise, causing yields to fall. Investors, in turn, benefit from the capital appreciation of their bond holdings and potentially enjoy higher total returns.

Moreover, the positive effects may extend beyond the immediate term. The inclusion of IGBs in JP Morgan’s GBI-EM index not only enhances market visibility but also opens avenues for further market expansion. The anticipation that other major index providers such as Bloomberg, S&P, and FTSE may follow suit by adding IGBs to their emerging market indices further underscores the potential for continued growth in the bond market. This expansion would offer investors more opportunities and contribute to a broader and more liquid market for IGBs.

US RATES CUES AND GLOBAL ECONOMIC DYNAMICS:

Examining the context of US rate cues provides a broader perspective on the global economic landscape. From mid-2022, the Federal Reserve embarked on a significant tightening policy, increasing interest rates by 525 basis points from near-zero levels. Additionally, the second phase of quantitative tightening marked the end of a decade-long loose liquidity regime.

The reduction of the Federal Reserve’s balance sheet by $1 trillion since June 2022 reflects efforts to unwind the expansionary measures implemented after the 2008 financial crisis. This reduction signals a shift in monetary policy towards a more normalized state, with a focus on controlling inflation and addressing potential asset bubbles. The US budget deficit reaching $1.695 trillion by September of the current calendar year, representing a 23% increase over the previous year, highlights the fiscal challenges faced by the US government. Such deficits can impact interest rates and inflation expectations, influencing global financial markets. The steady decline in inflation from 9.1% in July 2022 to 3.2% by October 2023 is a notable development. This moderation in inflation aligns with the Federal Reserve’s goal of achieving price stability. However, it is important to note that despite these efforts, the US labour market has displayed resilience, with economic growth in the last two quarters. The Federal Reserve’s strategy of interest rate hikes and balance sheet reduction is designed to achieve several key economic objectives. The primary goals include reducing consumer demand, cooling off the labour market, and bringing inflation down to a target of 2%. However, the resilience of the US labour market, coupled with robust economic growth in the last two quarters (2% and 4.9%), suggests that the intended effects may not be fully realised in the short term.

The expectation in the markets for a rate cut only by the middle of 2024 indicates a cautious approach by the Federal Reserve. While interest rates and yields may have peaked, the consideration for rate cuts appears contingent on achieving specific milestones—namely, taming inflation and achieving a balance between economic growth and unemployment. This cautious stance by the Federal Reserve is likely to keep global interest rates elevated in the near future. Investors are encouraged to take note of this scenario, as it presents a strategic opportunity to freeze investments at higher interest rates, capitalising on the peak of the interest rate cycle.

REBALANCING ASSET ALLOCATION:

Given the upward trajectory of equity markets, many investors may find their original asset allocation patterns skewed towards higher equity levels in their portfolios. In this context, it becomes opportune for investors to consider rebalancing their asset allocations. This involves readjusting the mix of assets in the portfolio to restore it to the originally planned allocation. The rationale behind rebalancing is to align the portfolio with the investor’s risk appetite, financial goals, and time horizon. As equity markets surge, the risk exposure in the portfolio may increase disproportionately. Rebalancing allows investors to restore the intended balance, potentially reducing overall risk and ensuring that the portfolio aligns with their long-term objectives.

In conclusion, maintaining an optimal asset mix is crucial for portfolio management, especially in the face of dynamic market conditions. As equity markets soar, rebalancing towards fixed- income instruments, perhaps through diversified debt mutual funds, offers a prudent approach. Seeking professional advice is emphasised, given the nuanced nature of the financial landscape, as a well-thought-out strategy is essential for navigating these markets successfully.

MUTUAL FUNDS

In navigating the diverse landscape of Mutual Funds, investors gravitate towards distinct preferences, shaping them into three primary categories.

• Individuals inclined to take risks and invest in Equity Funds.
• Those prioritising safety, opt for debt funds to generate returns while preserving their capital.
• Investors seeking a balanced strategy, aiming for a mix of risk and safety through investments in hybrid funds.

Within the equity category, two notable sub-categories are multi-cap and hybrid funds. While both fund types focus on companies with varying market capitalizations, their approaches differ in methodology.

WHAT ARE FLEXI-CAP FUNDS?

Flexi-cap funds strategically navigate a spectrum of market capitalizations, encompassing large-, mid-, and small-cap equities. In contrast to the more rigid structures of multi-cap and small-cap funds, flexi-cap funds offer investors the flexibility to diversify portfolios across companies of different market sizes, thereby diminishing risk and volatility.

The fund manager plays a pivotal role in assessing the growth potential of businesses, irrespective of their size. Subsequently, the manager allocates funds across various market segments and businesses, underscoring the adaptability inherent in flexi-cap fund management.

Benefits of Investing in Flexi-cap Funds:

• Fund managers are free to invest across the market capitalisation spectrum
• A well-diversified equity strategy with a “go-anywhere” attitude is offered
• Investors get the ability to capitalise on opportunities across the market spectrum - regardless of market capitalisation, sector, or style
• It aims to take advantage of investing possibilities across the board
• Due to a diverse Portfolio, it effectively balances risk and reward

WHAT ARE HYBRID FUNDS

Hybrid funds invest in equity and debt products to achieve diversification and prevent concentration risk. A proper mix of the two (equity and debt products) provides better returns than a traditional Debt fund while avoiding the risks of equity funds. The risk tolerance and investing objective of the investor determines the type of Hybrid Fund one should choose. Hybrid funds use a balanced portfolio to produce long-term wealth growth while generating short-term Income. The fund manager divides your money between equities and debt in variable quantities based on the fund’s investment objective. To profit from market fluctuations, the fund manager may buy or sell securities.

HOW DO HYBRID FUNDS WORK?

Hybrid funds may invest in more than one asset type depending on the scheme’s investment objective. They invest in various asset classes, including stock, debt, gold-related products, cash, and others. Asset Allocation is based on the investment objective and market conditions to achieve optimal risk-adjusted returns.

FLEXI-CAP FUNDS VS HYBRID FUNDS

CONCLUSION

If you can withstand the market volatility and stay invested for a longer duration, then you will be able to achieve bigger returns than other categories. Even if you want to start with risky funds, make sure you start with a low amount and diversify your portfolio with at least two different funds. A mix of both equity and debt would be better.

Disclaimer: Bajaj Capital Limited (‘BCL’) has taken due care and caution in presenting factually correct data contained herein above. While BCL has made every effort to ensure that the information/data being provided is accurate. BCL does not guarantee the accuracy, adequacy or completeness of any data/information in the publication and the same is meant for the use of the recipient and not for circulation. Readers are advised to satisfy themselves about the merits and details of each investment scheme, before taking any investment decision. BCL shall not be held liable for any consequences, legal or otherwise, arising out of use of any such information/ data and further states that it has no financial liability whatsoever to the recipient/ readers of this publication. Neither BCL nor any of its directors/ employees/ representatives accept any liability for any direct or consequential loss arising from the use of data/ information contained in the publication or any information/ data generated from the publication. Nothing contained in this publication shall constitute or be deemed to constitute a recommendation or an invitation or solicitation for any product or services. Any dispute arising in future shall be, subject to the Court(S) at Delhi. Views given in the articles are the personal views of the contributors and not that of the company. Readers are advised to go through the respective product brochure/ offer documents before making any investment decisions. Disclaimer: The rates of interest are applicable as on the data mentioned herein above. The rate may be revised at the sole discretion of the respective companies inviting the Fixed Deposits without further notice. Printed by, Rajiv Wadehra, Published By, Raji Wadehra on behalf of Bajaj Capital Investment Centre Limited, Bajaj House, 97 Nehru Place, New Delhi - 110019, and Printed at Sundeep press C-105/2, Naraina, Industrial Area Phase - New Delhi - 110028, and Published at Bajaj House,97 Nehru Place, New Delhi - 110019, Editor-Rajiv Wadehra (CIN: U0000DL1988PLC039417))