The Buyt Desk
The falling interest rate on saving schemes impacts the financial goals and plans. The consistent downfall in the interest rate on saving schemes like fixed deposit, PPF, Sukanya Samridhi Yojana, senior citizen saving scheme etc., means the investor would not be able to reach the target corpus after the set period of investment which they anticipated at the time of starting the investment.
E.g. suppose if someone started investing in the public provident fund (PPF) in 2014 with an interest rate of 8.7%. He started contributing approximately Rs. 1.5 Lakhs every year, with a target of accumulating a corpus of Rs 80.66 Lakhs in the next 20 years, will not be able to achieve its target corpus with the falling interest rate. The prevailing interest rate of 7.1% created the gap of 1.6 % from the 2014 rate, creating a deficit of approximately 13 Lakhs, i.e. 16% from the anticipated corps. And who knows, it might further decrease or increase.
So, is there any way to fill the bridging gap between the desired corpus and the actual one?
Experts have suggested four ways to do that.
Increase the Investment Amount – Investors can fill the gap between desired amount and the actual amount by increasing investment every year. It is possible, especially for the younger generation, because they grow in their career and see an increase in income with time. With increased income, there is a scope of saving and investing more. A hike of 2-3% in investment is enough to fill the gap. Anyone can stretch their investment to get the desired outcome.
Extending Your Goal’s Deadline- If there is no possibility of increasing the investment amount, the other option is that you postpone the targeted time. Suppose you have planned investment for 20 years with the prevailing interest rate, and if the interest rate decreases, you can extend your investment plan for a couple of years to achieve the target. Nevertheless, this option is not very feasible as it is not possible to defer a few goals such as, you can postpone your retirement or child education.
Create A Mix Portfolio – Consider other investment options that offer a higher return than the fixed income. E.g. equity, gives a higher return, though there is risk involved in it. To cover risk, you have PPF. You can invest in equity for the long term and let the asset grow. The best part is that even a small contribution in the equity can help you fill the gap.
Reduce The Goal Size – If nothing is possible, the last option left with you is to downsize your goal. It is an obvious option for investors who cannot increase their investments or invest in other products. Reducing goal size will make the process less stressful.
All these options are feasible for investors who have started investing early. If you have started investing from the age of 25 and set the target for 20 years, you can extend your goal for a couple of years as you still have time to get paychecks. The same is not possible for the investor who has started investment in 40. Therefore, the earlier you start investing the better it is.
