INVESTMENT OPTIONS FOR DOCTORS

DR SUDHIR KUMAR MD DMCONSULTANT NEUROLOGIST

APOLLO HOSPITALS, HYDERABAD

SIGNS of GOOD INVESTMENT

• Capital (income) is protected,• One should earn good profits on the investment,• Investments should have lesser risks,• Investment should be tax-efficient (lesser tax on

profits),• Should be able to build wealth for needs

(children’s education & marriage, travel, retirement),

• Investments should be easy to redeem.

PROTECTIVE COVERS Before we start investing, a few protective covers are very important:1. Life insurance2. Medical insurance (mediclaim)3. Professional indemnity insurance

(Do not mix insurance and investment; treat insurance as purely protection against risks)

LIFE INSURANCE• Best are the online term plans• For a 40-year old non-smoker man, Rs 18,000/ per

annum would give a cover of one crore for the next 30 years. (i-protect by ICICI prudential)

• Term plan for one crore by LIC would cost Rs 57,000/ per year

• In contrast, a similar cover by LIC (Jeevan Anand) would cost Rs 4 lakhs per year!

• Please compare the different plans online and choose.

INSURANCE (2)• Mediclaim: a must in view of spiraling

cost of healthcare (family floater plans are more economical),

• Professional indemnity insurance: Rs 5300/ for 1 crore, and Rs 10,500/ for 2 crore (for groups of professional organizations)

INVESTMENT OPTIONS

• Cash,• Gold and silver,• Real estate,• Fixed return instruments (FD, PPF,

bonds, etc)• Debt mutual funds,• Equity (equity mutual funds, shares)

CASH (1)• Many doctors earn in cash (OP fees, etc),• They prefer keeping cash at home (so that

they can avoid paying taxes),• Cash can be used only for buying gold or

real estate (or can be blown away on shopping),

• Value of cash erodes over time (with 7% average inflation per year, one lakh will be worth only Rs 13,000 after 30 years)

CASH (2)• For ex: In 2000, you could watch a movie for Rs

15, now the cost has multiplied 15 times (Rs 225), Rs 15/ may not even cover your car parking fees!

• So, the value of cash kept at home would always diminish over time,

• Moreover, it is unsafe (risk of theft),• Risk of getting caught by IT authorities. • Cash at home: Strict NO (except for keeping some

cash for emergencies)

SAVINGS ACCOUNT• Many people leave money “idle” in savings account,

as they consider it “safe”• Interest rate is 4% in most banks (6% in a few; 7%

in RBL bank), which is lower than the average inflation rate of 7%,

• Moreover, we need to pay taxes on the interest earned (so, for a person in 30% tax bracket, post tax returns are only 2.8%),

• Investment in savings bank account: Not advisable (except for routine and emergency needs)

FIXED DEPOSITS• Many people prefer fixed deposits (FDs), as it is considered

safe,• The interest rates are about 4-7.5% (likely to fall further),• The interest on FDs is taxable. So, in 30% tax bracket, the

post-tax returns would be about 3-5% (again lower than the inflation rate)

• So, the value of investment would erode in FDs.• Also, the money gets locked (can not be withdrawn) for 1-5

years.• FD: Not a “good” investment option for younger people; post-

retirement some money can be kept in FDs due to safety.

DEBT FUNDS ARE BETTER THAN FD

RECOMMENDED FIXED RETURN INVESTMENTS (1)• PPF: any person can open an account, with annual deposit

between Rs 500 to 1.5 lakhs,• Rate of interest: 8.1% per year, compounded,• Both the principal and interest are exempted from tax• Sukanya Samridhi scheme: Pays 0.5% more interest than PPF

(8.6% per year now). Can be opened in the name of girl child below 10; maturity after 21 years or marriage (which ever is earlier). Amount that can be invested (Rs 1000-1.5 lakhs/year)

Verdict: Both PPF & Sukanya Samridhi scheme-A must for all (Limitation is the low ceiling of 1.5 lakhs per year)

FIXED RETURNS (2)• Tax-free Bonds: These bonds are opened for

subscription at certain times only, and pay an interest of 7-9% per year for 10-15 years,

• As the name suggests, the interest is tax-free,• There is no limit on the amount of investment

(however, due to oversubscription, one may not get the required amount of bonds)

• These are listed on stock exchanges, so are liquid assets (can be redeemed any time).

• EXCELLENT investment option

GOLD• We are fascinated with GOLD. Every Indian

household has significant gold assets.• According to estimates, Indian households

have 22,000 tons of gold; in addition to 558 tons held by central bank,

• Jewelry has sentimental value and usually is not sold/traded; important part of weddings

• So, sometimes gold is considered a dead investment.

INDIA’S FASCINATION FOR PHYSICAL GOLD

GOLD (2)• Gold is relatively safe investment option, and offers a hedge

against inflation too,• Various options- jewelry, Gold bars, ETFs, Fund of funds, and

sovereign Gold bonds• Gold bonds give an interest of 2.5% per year (tax free), and are

very safe, lock in period of 8 years, can be redeemed after 5 years, Limits: 1 gm to 500 gms

• Jewelry is not safe (risk of theft), storage (bank lockers) requires money, purity is not assured, and there is no earning unless sold.

• Conclusion: Gold should form 5-10% of investment portfolio (preferably in the form of sovereign gold bonds).

REAL ESTATE• “Black money (undeclared cash income)” is

usually used for buying real estate,• Also, people feel real estate gives fascinating

returns,• Land value usually appreciates, however,

cost of property built on it depreciates in value,

• A “bit of luck” is needed, as not every real estate value appreciates the same,

REAL ESTATE (2)• Real estate can create “tensions” among family members,

partners and friends and may lead to “murders”• Litigations and disputes are common,• Land may get encroached by land grabbers,• Real estate may also suffer, if Government acquires it for

infrastructure, industries, etc• “Big” investments are needed (as you can not buy land

square feet by square feet)• It is mostly “illiquid” as you can not sell part of land and

also it is not easy to find buyers when you need the cash.

BUYING PROPERTY CAN LEAD TO LITIGATION OR

EVEN DEATH

REAL ESTATE (3)• Some people buy apartment or villas to earn

“rental” income; however, it does not make good investment sense,

• This is because “rental yields” are very low in India (2-4% of the property value per year), which is much lower than even the FD rates,

• In addition, one needs to maintain the property, pay property taxes and “dance to the tunes” of the tenant.

RESIDENTIAL PROPERTY YIELDS

ARE LOW

RENTAL INCOME vs MUTUAL FUNDS

APARTMENT DEBT MUTUAL FUNDS

Amount invested 50 lakhs 50 lakhsEARNINGS (per year)

3 lakhs (25000X12) 4-6 lakhs

EXPENSES Prop tax, repairs NoneTAX YES YES (lesser)Capital protection Depreciation likely ProtectedHassles Tenant behavior;

upkeep of propertyNone

(Taxes needs to be paid even if the house is not occupied/not given on rent)

EQUITY• Equity is by far the best investment option,• You can either do it indirectly through mutual

funds (demat account is not needed), or you can directly buy shares of various companies (demat account is needed),

• Need to select good mutual funds or good companies

• Stay invested for long term to get the best returns,

EQUITY MUTUAL FUNDS (1)

• Mutual funds (MFs) are managed by fund managers (experts in financial field) for a fee (about 2-3% fees on invested amount),

• Fund managers buy shares of various companies from the money that people invest into various MFs accounts.

• On an average, equity MFs give returns of 15% or more per year (these returns are tax free after one year),

• Investments can be done as SIP (fixed amount every month) and as lump sum whenever market indices are down.

EQUITY MFs (2)• Start investing early to gain more (due

to compounding value),• Invest regularly over long periods,• Hold for long term to gain maximum

returns (rather than selling in short periods- taxable if sold within one year, also lower returns)

MUTUAL FUNDS- TAXES

BEST EQUITY MUTUAL FUNDS FOR

SIPs

MUTUAL FUNDS: 15-YEAR SIP RETURNS

MUTUAL FUNDS: 10-YEAR SIP RETURNS

POWER OF COMPOUNDING

Amount/month

No of years

Total invested

Returns

Maturity

Gain

Mr A 10000 20 24 lakhs

15% 1.51 crore

1.27 cr

Mr B 20000 10 24 lakhs

15% 55.7 lakh

31.7 lakh

Starting investing 10 years earlier has given four-times higher returns for Mr A, even though the amount invested is the same.

SHARES• One can invest in shares directly, demat

account is needed,• More risky (than MFs), as wider swings

are seen (up or down),• In-depth knowledge about a company is

needed before investing,• Holding shares for a long-term gives

better returns.

SHARES MULTIPLYING >100 TIMES IN 20

YEARS

REAL ESTATE vs EQUITYREAL ESTATE EQUITY

Amount needed Large amounts Any amountDiversification Usually not possible PossibleRisk High ModerateReturns Moderate-high Moderate-HighRedemption Difficult EasyPartial redemption Usually not possible PossibleLitigation Mild risk NoneRegular income Land(none), rental* Yes (dividend)

DIVERSIFICATION IS IMPORTANT

RETURNS OF VARIOUS ASSET

CLASSES

INCOME TAX RATES (2017-18)

CONCLUSIONS (1)• Financial planning is a must for all doctors, including

anaesthetists.

• The first step is to make a file with details of income and expenditure.

• Second step is to declare all the income, rather than falling into the trap of keeping cash at home to avoid paying taxes.

• Third step is to take all the protective covers, such as life insurance, mediclaim and professional indemnity insurance.

• Finally, the surplus money (left over after expenditure) should be wisely invested.

CONCLUSIONS (2)• Keeping the money idle in the saving account or investing

in fixed deposits is not a wise option, as the returns are taxable and they are lower than inflation.

• Lesser risky options with reasonable returns (8-9% tax-free returns) include PPF, Sukanya samridhi scheme, tax free bonds and debt mutual funds. Slightly more risky options with better returns (>15% returns per year; tax-free after one year) include equity mutual funds and shares.

• A part of investment (5-10%) should be in gold (best option is sovereign gold bonds).

• Real estate investment is better avoided due to higher costs, risk of conflicts/litigations, difficulty in redemption, involvement of "black money” and relatively lower returns. 

QUERIES/COMMENTS?

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