Long Term Savings & Investment Plans for Blue collar workers

If you are employed in a manufacturing unit / service industry / gig economy or self-employed and if your monthly income is under 20K, this is the right time to think about the long-term savings plan for your future.

Let us start first with the Emergency Fund:

It’s always advisable to have a minimum of 3 months of your monthly expenses in your bank account as your emergency fund. This will support you at the time of critical need.

• To manage urgent situations like
  • Medical requirements
  • Job loss
• To Manage your running requirements like
  • College / Exam fees
  • Expenses towards family functions

For example, if you are earning around Rs. 15000 per month and your monthly expenses is Rs.1000, then you should plan to accumulate Rs 30000 in your savings account.

You can plan to save Rs. 3000/month by opening a RD in your bank account for the next 10 months to accumulate Rs 30,000/- as your emergency fund.

ATAL PENSION YOJONA (APY) – GUARANTEED PENSION BY Govt of India

Scheme Details:

• APY provides minimum monthly pension guarantee after 60 years of age
• One can choose to get monthly pension amount as Rs.1000 / Rs.2000/ Rs.3000 / Rs.4000 / Rs.5000
• Entry Age: 18 – 40 years
• Join APY through Bank Branch / Post Office and enrol for auto debit facility
• Contribution is either monthly / quarterly / annually.

Contribution Details:

• Detailed contribution table is available in the below link: APY Subscribers Contribution

Contribution – Example:

• If you are 18, you should invest Rs. 210/month to get Rs.5000/month from the age of 60
• If you are 25, you should invest Rs. 376/month to get Rs.5000/month from the age of 60
• If you are 30, you should invest Rs. 577/month to get Rs.5000/month from the age of 60
• If you are 35, you should invest Rs. 902/month to get Rs.5000/month from the age of 60

15 YEAR – Public Provident Fund Account

Scheme Details:

• Individual Investors / Individuals on-behalf of a Minor child
• Minimum Investment Rs 500/year, Maximum Investment Rs 1,50,000/year
• Duration: 15 Years, can be Extended for one or more blocks of 5 years
• PPF Account cane be opened in a Post Office / Bank branch
• Interest is announced by the Govt of India for every financial year
• From 01.04.2020, the interest rate is 7.1% per annum (compounded annually)
• Interest is completely tax free
• Partial withdrawal is allowed from the 6th year onwards with pre-conditions

Power of Compounding

• The benefit of long-term savings can be seen through golden rule of Power of Compounding
• Every year, the interest amount is added to the principal and the interest is calculated for the total amount.
• For Example:
• If you are investing Rs. 500/month for 15 years, total investment is Rs. 90,000/-
  • Assume a fixed interest rate of 7.5% through-out the period.
  • The maturity amount will be Rs. 1,81,098 in the 16th year.
  • If you extend the investment for another 5 years, total investment is 1,26,000/-
  • The maturity amount will be Rs. 3.06,714/- in the 21st year.
• Hence the benefit is through power of compounding.