What are the Social Finance and Retirement Account Loans?

Chakshu Arora
Tax Professional

August 11, 2017

The financial world is changing and is changing fast. Ever since the global recession of 2008, the change has been faster than it has ever been. The 2008 recession was a wakeup call for all the stakeholders of the financial world. The entrepreneurs, the startups, the people and everyone else have now switched to unconventional sources of funding. With the new government policies coming in play, it is now easier for the startups to get funding. It includes retirement funds and savings as social finance tools through new types of lenders. Spend as much as you earn has become a thing of past and Systematic Investment Planning (SIP) has taken over. Social Finance and Retirement Plans are two of the examples which guide you how to plan.

Retirement plans are, however, there to finance your needs in future. It helps you to make plans future after you are at the twilight of your lives. Post retirement planning has become very important in this world where nothing comes easy, be it securing a job, holding onto it or after you retire and are at the end of your days. You need to plan accordingly. Retirement account loans are the loans against the retirement plans. Don’t confuse it with making a withdrawal. Withdrawals and loans as against the retirement plans are two different things. The amount you withdraw is not to be repaid but the loan must be repaid. Thus, the withdrawals reduce your assets in the portfolio.

Now, the question is whether, or not, should you take a loan from your retirement account? First up, you need to calculate the returns you get from the assets you are taking the loans for. Loans have an added advantage that the amount is not being reinvested in withdrawals but in loans it is reinvested. Thus, the portfolio is reduced in withdrawals but it is not the same in loans. But this is not where it all ends. The interest on retirement account loans is double taxed. You should take a loan from your retirement account only if you run out of other sources. Take loan from retirement account only is absolutely necessary. Also discuss it with your financial planner to decide the best option for you.

Social Finance is the investment in social enterprises, charities, co-operatives and other such organisations. Many kinds of investments fall under the umbrella of social finance. In such investments, unlike other investments where investors only get financial reward, investors seek social gain as well. Modern kind of social finance can also include small loans in less developed countries to improve the standard of living. The three dimensions of Social Finance are risk, return and impact. Some investors focus on environmental returns for the larger world and this is what matters the most.

You don’t need to sacrifice your returns to make social results possible in case of social finance. It is the combination of wealth and values and is pretty common now. The investors can make social impact without doing anything out of the box. It also fulfils the philanthropic goals and creates a legacy for the upcoming generations. They can accumulate a lot of wealth and gift legacy. It also helps them get away with their fiduciary obligations and builds confidence and connection with the Gen-Y people.

For social finance, catch the market news as fast as you can or you will reach the party when everything will be over and you will have leftovers waiting for you. Stay ahead of the pack and catch the market news from the opening to closing time.

As previously stated, Systematic Investment Planning (SIP) has become very important and the investors have to be judicious while investing every single penny, for the returns fluctuate and you don’t know what happens next and what comes your way. For retirement plans, you need to choose if you want to use the money invested for the future or you want to save it for its primary purpose i.e. the retirement period. And for social finance, you ought to see how much the returns are and how much do you need to invested in which venture so that the financial, social and environmental gains are maximised.

This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST Software , Online Seller Loan , Equipment Financing , Invoice Financing , Home Loan , Merchant Cash Advance .

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