Socionomics — Social Investing as a Pension Plan!

December 14, 2011
By Rang De Team

By Rakesh Khemani, Social Investor, Bangalore

I believe in social investing as a means to knock down poverty, to help people help their families, to support the enterprising with a relatively affordable resource, to help those who believe in a dignified existence and are willing to work hard for it, to do my bit for the society and derive the vast sense of satisfaction and purpose; the reasons are equal to the number of individuals who believe in it.

However, beyond and in addition to the altruistic objectives for social investing, can it be viewed using the pragmatic lens of sound financial planning?

Let’s explore the idea with an illustration. A is a 30 year old who makes a social investment of Rs. 2000 per month with a distribution of Rs. 200 each to 10 rural entrepreneurs. At the end of the first year, she would have made a social investment of Rs. 24000 and impacted 120 families. It is assumed that the repayment is 100% at 2% interest annually.

In the second year, she continues investing Rs. 2000 per month and also reinvests (from the repayments) Rs. 2000 per month. Let’s also assume that the interest of Rs. 480 for the social investment for the first year is reinvested in the second year.

Thus at the end of second year, A would have invested Rs. 48480 thus impacting 362 (120+242) families. Let’s assume that A continues the method as described above for 27 years and receives all the repayments back in the 28th year without making any new investments or reinvestments in the 28th year.

At the age of 58, A would have received back a corpus of Rs 848264 as depicted in row 1 of the table below:

Monthly Social Investment

Corpus after 27 years (Rate of return at 2%)

Pension/month (MIP at 8%) from 29th year

No. of families impacted (Rs.200/family)

2000

848263.772

5655.091813

54292

3000

1272395.658

8482.63772

81446

5000

2120659.43

14137.72953

135757

As shown above, assuming an interest rate of 8%, an MIP would provide A with a pension of Rs. 5655 per month from her 59th year onwards!

Going by the original objective, A has positively supported 54292 families towards their dreams. A could receive a pension of Rs. 14138 per month with a monthly social investment of Rs. 5000.

So we see, social objectives and personal objectives need not be mutually exclusive.