The mistakes do-it-yourself Investors make when the going gets tough

The mistakes do-it-yourself Investors make when the going gets tough

The last few days have been unprecedented and will be part of stories which we tell our grandchildren. We have been proactively in touch with many of our customers over the last few days, to understand their worries and allay their fears. And we are pleasantly surprised by their typical response to the situation.

 

On the other hand, we get a lot of calls from DIY customers who want a sounding board during difficult times. They are looking for some advice, they are essentially gauging if they are on the right track. What we notice with a vast majority of them are the following

 

Read more about this in our latest article, published on Moneycontrol.

 

https://www.moneycontrol.com/news/business/personal-finance/the-mistakes-do-it-yourself-investors-make-when-the-going-gets-tough-5078681.html

 

 

Image credit: Moneycontrol

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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The Finwise Couple series – In celebration of International Women’s Day – 4

The Finwise Couple series – In celebration of International Women’s Day – 4

For our next couple, equality doesn’t come with having to contribute to the monthly budget. They know one another since being college-mates and after nearly 2 decades of being married, can both complete each other’s sentences as well as together enjoy the silences in between.

 

Rajesh Kodoth is Regional Business Head at Ola Cabs and Swetha Rajesh, manages their wonderful home, having decided to leave her career early to devote her time to family. Over the last few years, they had built an assorted but real estate heavy portfolio and decided that it was time to seek professional help to future-proof their investments.

 

On the trigger to seek professional advice, Rajesh says “While we have been investing it wasn’t necessarily based on what was required to cover long-term financial needs. Also, our asset allocation was not balanced. Finwise helped me create investment plans to maximise returns on the current investments and plan the future.

 

On being asked about Swetha’s involvement in their financial well-being journey, he had this to say “Swetha is an integral part of our expense planning and in the journey to financial well-being. Her involvement helps make right decisions, gives an alternate perspective and overall comfort of a partnership.”

 

Being involved in a financial well-being journey together does not necessarily require both the spouses to be equal contributors financially. What it does require is the mindset that the other person can bring something to the table, and from our experiences, we can surely tell you that in such cases, one plus one turns out to equal much more than two!

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

The Finwise Couple series – In celebration of International Women’s Day – 3

The Finwise Couple series – In celebration of International Women’s Day – 3

Our third couple are equals in every sense. Amish & Trupti Jasapara are doctors and both are in corporate practice. Amish is Senior Consultant at Fortis Hospitals and Trupti is Senior Consultant at SR Mehta & Sir KP Cardiac Institute. And in their personal lives, both take turns – whether it is in managing the various expenses of their family or in funding for their goals of the future.

 

As Amish says, “As doctors who face the same challenges every day, there was no way we could have been anything but equals. Trupti has single-handedly managed the family and has taken decisions without hesitation, when I took a sabbatical to study in Germany. She is a prudent investor and her involvement has meant that we have not added unnecessarily to our lifestyle and have saved before we spent. We both ensure we are on the same page before we embark upon any new investment/expenditure.”

 

On being asked about when they discovered the need for professional advice, Trupti had this to say “As doctors, if there is one thing which is in short supply, it has got be time. Lack of proper knowledge of investments, some losses incurred and shortage of time directed us towards getting professional help for our investments. Finwise through their systematic analysis helped us understand that healthy financial goals are a reality.

 

Their being professionals themselves, they didn’t have to hesitate when it came to seeking professionals when planning for their future goals, including their retirement. Having done that, they are now able to spare valuable time on other aspects of their personal life – scaling further heights in their professional careers and enjoying the small pleasures in their present, without having to feel guilty about it.

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

The Finwise Couple series – In celebration of International Women’s Day – 2

The Finwise Couple series – In celebration of International Women’s Day – 2

While in many households, it is common to see that the responsibility of managing investments falls upon one, having a spouse who is also interested in the nuances of money need not be threatening at all to the person managing it. If anything, it helps by having a bouncing board, and allows you to get another perspective. A person who knows you and is equally responsible in the money management process helps ensure that individual biases if any get identified, since the risk-tolerances of both is not likely to be the same.

 

The couple we talk about today is one such. They are Pramod Marar & Suvena Bansal, both of whom work in the banking & financial services sector. Pramod is COO – Commercial Banking at HSBC India and Suvena is Head – Risk Policy at Aditya Birla Finance Limited.

 

Both Pramod & Suvena have been judicious about the need to put money away, and have been active savers and investors right from the beginning. So how did Pramod & Suvena decide that they needed help in reviewing their finances? In their words, “We felt the need to consult with professionals, when we reshuffled our real estate portfolio and realized we needed a better asset mix for our mid-term goals. Time was running out, there wasn’t enough time to plan, research and execute. We also needed someone whom we could trust and yet they weren’t too close, as financial matters can strain relationships.

 

On both being involved in the decision making on their family’s finances, they say, “Both of us from the beginning have had a say in all the investment decisions we have made. It has been a together thing always, we just don’t know to do it any other way.”

 

Their comfort with managing money together has helped Pramod & Suvena over the years jointly formulate a plan that will help them meet their financial goals for their family and achieve financial security. And being financially secure, is helping them focus more on the other things in life. In their words “Parents are getting older so we like to spend as much time as we can with them. Kids are in the teenage phase and require a new orientation, something we are working on. Work as new responsibilities so overall, a plate that is overflowing full.”

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

The Finwise Couple series – In celebration of International Women’s Day – 1

Last year, for International Women’s Day, we shared stories of some successful women, who over the last few years, started their journey with Finwise and took charge of their financial lives to make it more secure for themselves and their families.

 

This year, we share journeys of some such couples over the next few days, and hope they inspire you to take similar actions to free your and families’ financial futures.

 

Our first couple is Dr. Ashok Dabir & Dr. Neela Dabir. Ashok is a successful and leading oral and maxillofacial surgeon in Mumbai, and Neela is professor at TISS, and Dean of their Institute of Vocational Education.

 

On the role of Neela in the family’s financial journey, Ashok says, “We have always had a relationship of equals. I was one of the earliest people to recognise that I had married someone who was meticulous in her work and could envisage and implement things effortlessly. I am not very involved with the finances as I can see Neela has the passion and an eye for numbers, she enjoys doing a deep dive to understand the nuances of the products. That has been a huge blessing since it gives each of us the space to pursue what we enjoy, while having the peace of mind that the better half is doing a great job with things, we don’t particularly like doing.”

 

About getting on the path of financial well-being, he surmises, “We had been investing over the years. But it was with various people who were selling products to us. None of them tried to look at us holistically. While each of them was able to enumerate the benefits individually, we were looking for somebody to bring it all together and give us an unbiased view as our representative and not trying to sell us a product. Our association with Finwise started way back in 2015 in a small way, it has grown to encompass all our investments and we have a sounding board for our ideas as well as someone to disagree with us when it is called for.”

 

Their children are now grown up and building their own lives, and in this phase, always being financially prudent has helped Ashok & Neela fulfil their passions – they travel the world together regularly, visiting new places, every few months.

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Celebrating the Men too, this International Women’s Day!

Celebrating the Men too, this International Women’s Day!

Its International Women’s Day on March 8th, 2020, and we can think of no better time during the year to reach out to you, to share a few inspiring success stories of people who are on the path to financial independence and well-being.

 

 

Last year, we shared stories of some successful women, who over the last few years, started their journey with Finwise and took charge of their financial lives to make it more secure for themselves and their families.

 

 

Conventionally, one would argue as to why we need a specific day in the year to celebrate Women? We should be doing that through the year, and we agree fully with the sentiment. Our monthly columns (published on Moneycontrol.com) on women and how they can handle money problems and achieve financial independence, is testimony to that fact.

 

 

We would instead like to respectfully submit that International Women’s Day need not only be about women individually. Women today are equal partners in life, whether at work or at home, and while they have fought to achieve this status, they have also been supported by a growing tribe of the opposite sex, who have actually lent credence to the theory that the “better half” is actually as good, if not better at managing money.

 

 

Over the last few years, we have come across many such success stories. While one kind is where both spouses are actively involved in planning and securing their financial future together (with, in some cases, the woman actually taking the lead), we also have the other, where the man, despite possibly being the sole or dominant earning member, consciously and actively involves his spouse in the financial decisions of the house, thereby, both literally and figuratively, “putting money where the mouth is”.

 

 

In our experience, it is this “absence of bias” in the relationship between spouses and respect for each other as equal partners, that is one of the true building blocks of well-planned and long-lasting financial and general well-being for the family.

 

 

This year, for International Women’s Day, we share journeys of some such couples over the next few days, and hope they inspire you to take similar actions to free your and families’ financial futures. Look out for the first journey tomorrow.

 

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Dear woman, don’t be risk-averse in choosing your investments

Dear woman, don’t be risk-averse in choosing your investments

Last week, I did a financial well-being session at a well-known corporate, the participants being predominantly women in their 30s. While they were all keen on taking charge of their finances and made for an attentive audience, most of them were extremely risk-averse.

 

This was startling, since women, usually, are not in a hurry. They are very patient, and once they understand the way a product is built and have realistic expectations of the short-term as well as long-term performance, they wait out the turbulent times patiently and truly stay put for the long term.

 

Given this fact, it was surprising to see that most of the women mentioned earlier were shying away from equity since they perceived the volatility in the short term as risk. There are several compelling reasons for women to take more interest and understand the best options available to them when it comes to investing. Here are three big ones.

 

Read our latest article, published on Moneycontrol.

 

https://www.moneycontrol.com/news/business/personal-finance/dear-woman-dont-be-risk-averse-in-choosing-your-investments-4981251.html

 

Image credit: Moneycontrol

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Lessons in managing money from Test cricket as we get into the 2020s

Lessons in managing money from Test cricket as we get into the 2020s

In the last decade or so, the Twenty-20 (T20) format has overtaken the traditional formats of cricket, due to its shorter match-time, fast-paced and glitzy game, adapted rules to make it more interesting as well as in-studio add-ons. While purists may not appreciate these “dilutions”, they have definitely democratized cricket, taking it to newer audiences both in existing countries where cricket is played, as well as to more countries across continents, moving the game up several notches in the global rankings of universal popularity as well as revenues.

 

Interestingly, we have also recently entered the 2020s decade. With the dawn of 2020, another decade just passed on! Already 2 decades of the new millennium are gone and it has been a full 2 years since the 21st century turned an adult! With attention spans shortening and the pace of life and changes to it both getting quicker, it sometimes seems that even time is playing a T20 version of its game on us.

While this fast-paced “T20 version” of life can get addictive, its effects can be quite corrosive! It has never been easier to acquire “look-rich” symbols of wealth, with literally everything, including luxury cars, now available at the click of a button on “easy” EMIs. There has been a dramatic change in the way people have managed their cashflows (Income vs Expenses) in the last few years, and this is also reflected in the household savings rate (as a % of GDP), which is down to 17.2% in 2017-18 from 23.6% in 2011-12 (data source – Forbes India, 2nd Jan, 2020).

 

The newer generation of investors also think quite differently as compared to their previous generation, placing far more emphasis on the present and the here-and-now while being not-as-concerned with what the future holds. Apart from re-defining their needs, this thinking also stems partly from a much higher level of self-belief and confidence in one’s own abilities, as compared to what the earlier generation had at this age.

 

That being the case, in these changing times, does managing one’s money also evolve a-la cricket and have its own “T20” version of the rules? In my view some things will not change, especially lessons on managing one’s money. They remain universal and relevant, just like Test matches in today’s T20 age, and if anything may become more relevant in the coming uncertain and high-speed decades. So, what are some of those lessons that you can take from Test cricket, to manage your money in today’s T20 times? Here are 7 simple ones.

 

 

  1. BE PATIENT – Test cricket can be boring, and needs to be played session by session

 

Test cricket can at times put you to sleep, and definitely test your patience, with its long-drawn out game, and sometimes non-result-oriented approach. Similarly, managing your money well can also be, rather, needs to be boring, and is a long-term repetitive process, year on year, with regular reviews and course corrections.

 

The great Warren Buffett says “The stock market is designed to transfer money from the impatient to the patient.”

 

 

  1. MAKE FEWER MISTAKES – The winner is the team which loses fewer wickets than the other

 

This is one the biggest differences between Test cricket and the other formats, since victory goes to the more resilient team, one that loses fewer wickets than the opponent. Similarly, a very productive approach in investing is to make as few mistakes as possible, and definitely, lesser than the broader market.

 

Charlie Munger once said, “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

 

 

  1. PROTECT YOUR CAPITAL – Defense is the best form of offence

 

The “test” in Test cricket possibly stands for a “test of a team’s defenses”, since the team needs to stay at the crease, ball after ball, over after over, without losing an unnecessary wicket. Similarly, being prudent with your money is about preserving your capital as well as possible for as long as one can, rather, it’s about maximizing returns with as minimum risk as possible.

 

In Anthony Robbin’s words, “Don’t think in terms of taking huge risks to get huge rewards, think about the least amount of risk for the greatest reward and be disciplined about that.”

 

 

  1. LOOK FOR CONSISTENCY – Boundaries are not as important as exploiting the field and running between the wickets is

 

A team that keeps the scoreboard ticking over after over, without unnecessary flashiness or risks serves its chances better. Similarly, a prudent investment strategy should make your money needs to grow consistently, with lower volatility, giving you much peace of mind.

 

Paul Samuelson’s advice – “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas”.

 

 

  1. ACTIVELY MANAGE ASSET ALLOCATION – Test cricket doesn’t have slog overs or power plays, instead, conditions determine how the game needs to be played

 

Test cricket doesn’t have pre-set match templates, needing one to score more in the early or late overs. Right from the decision post the toss, its about watching conditions and adapting your game accordingly. Similarly, when it comes to investing, there is no absolute good or bad asset class. Managing Asset Allocation on an ongoing basis is key to a stable and successful investment portfolio.

 

David I. Lampe reminds us what our parents also used to say “Asset Allocation is not that different from what mom told us growing up: don’t put all your eggs in one basket.”

 

 

  1. ADEQUATELY DIVERSIFY – Test cricket requires a full complement of quality players, each of whom is a specialist. In the shorter form, you can make do with pinch-hitters and all-rounders.

 

While in a shorter format, teams can get away in games with a few multi-talented players, in test cricket, even one weak link gets shown up over the course of the match. Every player is important and needs to bring to the ground specialist skills that will help the team prevail over the other. Similarly, a good investment portfolio is adequately-diversified to take care of risk (while not being over-diversified to dilute quality), and does not depend only on a few concentrated bets to deliver, while the rest of the portfolio underperforms.

 

Chris Lutz says “The purpose of diversification is so that when one investment goes down or is not doing well, you are insulated from the result because of the others you have in place.”

 

 

  1. STAY THE COURSE – Lastly, Test cricket is about winning the series. There can be comebacks, though difficult. Unlike in the shorter form, where one bad day can send you out of the World Cup.

 

Lastly, Test cricket is unique in that, it gives you a second chance. A bad day at work (or in the market) doesn’t send you home (or wipe you out). Similarly, Investing is about having a well-planned and adaptable strategy, not making catastrophic mistakes while learning from the smaller ones (not just yours) and staying the course even when things look bad.

 

Let me end with Peter Lynch’s wise words on staying the course “You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you are not ready, you won’t do well in the markets.”

 

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

To receive our articles through email, pl subscribe here.

For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

 

 

Image credits: Rahul Dravid – Photo Division, Ministry of I&B, Govt. of India, through Google (labelled for reuse); MS Dhoni – Wikipedia, through Google (labelled for reuse)

6 reasons why you still haven’t given time to manage your finances and 1 reason why you should

6 reasons why you still haven’t given time to manage your finances and 1 reason why you should

So, what gets people to have a serious look at their finances and take some concrete steps towards assessing their financial position and formulating a plan for their financial security?

 

Of course, there are some people who are “born” meticulous and organized and hence have their plans all chalked out. But for most of us (based on our experiences), it usually doesn’t happen gradually, rather needs a trigger of some sort in our lives. The trigger could be some sort of personal experience or something that has happened with someone close, or even the sudden unpleasant remembrance of some childhood memory.

 

But until this happens, managing your own money takes a back-seat, while prioritizing work, family, current needs, perceived emergencies and in the absence of all this, pure lethargy. So, here are six reasons why many still haven’t got around to putting their finances in order, and one reason why some have.

 

 

 

 

 

  1. “Whats the hurry? My goals are far away, I have enough time on my side” – THE CAREFREE

Some of us typically think we have a lot of time, and many a times mistake urgent for important. We avoid contemplating the future, thinking that it has a way of sorting itself out. We usually need some unpleasant shock to make us realize that the future is something that doesn’t just happen, but needs to be planned for.

 

 

 

  1. “I know I have to save, but I don’t have any savings left after I pay my EMIs!” THE OVERSTRETCHED

Some of us love running after material acquisitions. We hanker after the latest gadgets. We usually also end up having a lot of unsecured debt (either a personal loan or revolving debt on our credit cards) because we keep running into sudden cash-flow issues. For us, planning horizons are not long.

 

 

 

  1. “I know it’s important, but am too caught up right now, will do it as soon as I can” THE ALWAYS-ON-THE-TREADMILL

Many of realize the importance of putting our finances in order, but somehow never seem to think it important enough to be top of the list. We would be putting in 12 hours at work and still think that’s not enough to meet our commitments. Somehow, crises have a way of finding us and keeping us always in fire-fighting mode.

 

 

 

  1. “I have checked with my friend, colleague as well as online, I just don’t know whose advice is right!” THE CONFUSED

Then there are some of us who will ask, then validate, then re-validate and then re-re-validate. We will seek inputs from the colleague, the friend, the neighbourhood uncle and maybe then go online to check whether we are missing a point of view. Trusting someone and taking decisions doesn’t come easy to us.

 

 

 

  1. “I am sorted, I have invested my savings in some hot stocks and I also have these 2 apartments” – THE KNOW-IT-ALL

A few are us are those who are both knowledgeable and also proud of our knowledge. We will be clear on why things are and how they are going to unfold. We usually have strong views of our own on money and investments eg. owning multiple houses through leverage since we believe we “understand” real estate, buying some stocks because “they are tipped to do well”, and so on.

 

 

 

  1. “I think this is not the right time, market is too high, it might crash” – THE PERFECTIONIST

And then, there are some of us who understand both the need to keep their finances in order and can see the benefits of doing so, but just are waiting for the “right time”. For us, the market is either “too high” and likely to fall, or “too low” and therefore may not go up in a hurry. Strangely, we don’t have a problem seeing our money idle in the bank while we make up our mind.

 

 

 

  1. “I know time is important, every day lost is lost forever. I am in it for the long haul” – THE MARATHONER

Then, finally there are a few of us who understand the value of time and the benefits of long-term-investing. At the same time, we take our time to ask the right questions, understand the value of financial planning, and then quickly get into action mode. Lastly, we are disciplined, at least about money, and once we make up our mind, we trust our judgement and get on with it. Truly, we are called a “planner’s delight”.

 

 

 

So, do some of these “reasons” seem familiar? Which one is yours? Most people we see have more than one, sometimes even a few of these. But importantly, it is when you put on the last “reasoning hat”, that things start moving for you on the personal finances front. For some its timely, for some late, but as the popular saying goes, better late than never.

 

 

Image credit: Anemone123%, Pixabay

 

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

The Finwise Take on Budget 2020-21

The Finwise Take on Budget 2020-21

Over the years, the significance of the Union Budget has come down and doesn’t have such an impact on our everyday lives, and hence doesn’t interest too many of us anymore. That said, there are still some, especially those in the finance businesses, for whom listening to the Budget is a yearly ritual.

Budget 2020 and its impact on your personal financial plan

But given the negative news as well as poor economy numbers over the last couple of quarters, we would dare say that the FY21 Budget presented last week had more than a usual number of people waiting for it. For most, last week would have been one of anticipation for Saturday to arrive and hope that the finance minister has something up her sleeve to magically move the economy into 4th gear, trigger consumption, improve rural incomes, increase investment, ease credit flows and banking woes and overall reverse the prevailing sentiment, while of course ensuring that the fiscal deficit doesn’t scarily worsen.

Many articles have already dissected the Budget presentation as well as the detailed document post that, so we will not attempt a repeat of that. But even for the most disinterested observers, the least they would have expected is how the budget will put more money into our pocket or at least ease our difficulties in dealing with taxes. So, we have looked at how this year’s budget has panned out for your personal finances and identified 6 changes which could affect you personally.

 

 

  1. Changes in Income Tax structure

Who doesn’t love choices? Whether its plain simple breakfast or choosing your next outfit we love it when we have choice, don’t we? However, that doesn’t seem to apply to Taxation structures. This year’s budget has changed the tax slabs but left the choice of sticking to the previous tax slabs or switching to the new ones to you. The catch is if you switch to the new tax slabs, you cannot avail of any of the deductions & exemptions currently available. Here is a quick look at the tax slabs that are currently in existence and the new ones which you can choose to switch to.

 

How do you decide which of the two options you should choose? What you need to look at is the deductions and exemptions you are currently availing of. The most popular ones being

  1. Rs 1.5 lakh under 80 C, the default option for most being EPF (ELSS, PPF, Life Insurance, School fees, Principal repayment of home-loan etc)
  2. Medical insurance premium under section 80D of Rs 25,000 for self and Rs 50,000 for senior citizen parents (total of Rs 1,00,000 if both self and parents are senior citizens)
  3. Additional deduction of Rs 50,000 for investments in NPS
  4. Deduction of 2L on interested paid on a home loan under section 24(b)

 

Prevailing & Proposed Optional Income Tax Slabs proposed in Budget 2020

Broadly, if you are claiming home loan interest deduction apart from 80C, you are better off with the previous tax slabs. But if you are not and do not have default investments like EPF for claiming deductions under section 80C and you are currently investing in products especially for the deductions, you can opt for the new slabs.

 

Finwise Take While there is a choice being given currently, the intention clearly articulated has been to move away in the coming future from the exemption and deductions being offered currently. Given this scenario, if you are buying a house or starting a new NPS account primarily to avail of the exemption you may want to rethink your decision.

Currently, a large number of investment decisions are made (and products are sold) at the last moment, primarily on their tax-saving features. We think this is a good step since the products thus bought will pass the tests of suitability towards risk profile and time horizon, and will help investors create substantially more wealth than now. You would be better off seeking the help of a financial advisor to help you make the right decisions customised to your needs, especially given the above.

 

 

  1. Increased insurance cover for FDs

Currently each depositor in a bank is insured upto Rs 1,00,000 inclusive of both principal and interest. This budget has increased this insurance limit to Rs 5,00,000, and this would help increase coverage and bring a greater number of impacted people under the insurance fold in case of bank defaults. This will give a lot of comfort, especially to senior citizens, for whom this is the investment of choice.

 

Finwise Take While increased insurance cover is a welcome step, it can give investors, especially senior citizens who look for that extra percentage point to prop up their meagre savings, a false sense of security about otherwise “dangerous” investment options in this space.

Our belief is that this insurance benefit is a “perceived” comfort. This insurance is payable by the Deposit Insurance and Credit Guarantee Corporation of India, a subsidiary of the RBI. DICGC will wait for the “defaulter” bank to be liquidated and de-registered, post which the DICGC receives claims from the banks and then pays out the claims, post necessary validations. The wait can be many years for impacted customers, and this risk is definitely not worth taking for extra percentage point of interest.

Our advice to our customers has always been to be safe with debt investments and not take any kind of risk with debt. Credit risk while investing in banks like PMC was ignored and has now come to the forefront. Insurance or no insurance, it is important not be lured by a few percentage points higher return. We often tell our customers to beware of higher interest rates, which some banks or institutions are offering, since higher-then-prevailing interest rate means higher than intended risk, which is opaque to the retail investor and our stance holds going forward too.

 

 

  1. TDS introduced for FDs in cooperative banks

Now, cooperative banks will also need to deduct tax at source on fixed deposits and recurring deposits if the interest exceeds 40K (50K for Senior citizens).

 

Finwise Take Earlier this was another big draw for investors to invest in co-operative bank FDs, apart from the higher interest rates. This welcome move will encourage people to think beyond tax and interest rate, while choosing their bank for FDs.

 

 

  1. Cap of 7.5L on exemption to retirement contribution by employer

As of now employer contributes 12% of basic towards EPF, Rs. 1,50,000 towards super annuation and 10% of basic towards NPS, and any amount of contribution to retirement benefits is exempt from income tax ie. is deducted from your gross income to calculate taxable income. The new budget has introduced a cap to this exemption, from the next FY, only contributions upto Rs 7,50,000 put together towards all retirement benefits will be exempt and any contribution over and above that will be taxed at your slab rate.

 

Finwise Take This is a big change and has a significant impact on high net-worth individuals having corporate careers. Senior corporate professionals earning approx. Rs 1 cr or above are likely to be impacted by this while, of course, actual impacts will be dependent on individual salary structures. For eg. someone earning a basic of Rs 2,50,000 per month, will have an annual retirement benefit contribution of Rs 8.1 lakh (assuming contributions to all 3 benefits – EPF, Super-annuation & NPS), and will cross this tax-exempt threshold. For people with such high salaries, this will mean rejigging compensation structures to reduce institutionalized retirement benefits, which in turn will have the negative impact of also reducing the retirement corpuses that these benefits create, requiring such individuals to plan better individually for their retirement.

 

 

  1. No more Dividend Distribution Tax

Currently, dividends received from shares and mutual funds are not taxed in your hands, they are paid post payment of DDT. DDT for shares is 20.56%, equity mutual funds is 11.64% and debt mutual funds is 29.12% before paying out the dividends. With new budget provision the dividend will be added to your income and taxed as per your income slab.

 

Finwise Take While this is a welcome step for corporates, especially MNCs, since dividend income to MNC shareholders was earlier taxed and is now free, it not such good news for retail investors, especially those in the higher tax brackets.

If you have a largely direct-equity portfolio, the dividend yield will fall substantially. You should consider shifting to equity mutual funds under the growth option where the tax outflow is capped at 10% long-term capital gain, that too on redemption, for investments over one year.

If you have invested in equity mutual funds (both pure equity & equity hybrid) in the dividend option, you should shift to the growth option immediately, for reasons similar to above, since the differential impacts here are even higher than in direct equity.

For debt mutual funds, the approach was dual. For people either in lower tax brackets or for long-term debt allocations (> 3 years), it always made sense to remain in growth, since both tax slab rate and LTCG on debt is lower. Whereas only for investors in the highest tax slab for short term investments (< 3 years), dividend option was better, since the STCG on debt is as per tax slab. With this change now, across the board, growth is the option to go with in debt mutual funds.

Also, one needs to remember that this has made tax-returns filing a bit more cumbersome, since dividend incomes now need to be added to overall incomes to calculate taxes, which earlier was not the case, with DDT.

Just in case an investor in the lower tax bracket is holding on to debt funds under the dividend scheme (due to poor advice or ignorant purchase), they will be hugely benefited as they would need to pay tax as per slab which is lower than the 29.12% being paid by the debt funds.

 

 

  1. Key changes for NRIs

Announcements in this section set the cat among the pigeons for NRIs, before clarifications led to clarity and calm. Some key changes

  • Taxation of global incomes of NRIs who are not tax-resident in any other country
  • Definition of Resident-tax – 120 or more days in India (reduced from earlier 182 days)
  • Definition of Resident but not ordinarily-resident – transition period increased to 4 years (from earlier 2 years)

 

Finwise Take → After giving a big scare to NRIs based out of the Middle East regarding taxing global income, there has been clarity that global income of residents of any country will not be taxed. While this doesn’t impact people resident in tax-free countries, people working in the merchant navy etc. may be impacted, since their long-period travels across the world may lead them to fall into this category of Non-Resident Indian but not resident of any other country.

In addition, such people will be doubly impacted by the second clause above, since they need to ensure they live in India for less than 120 days to classify as non-resident, as against 182 days earlier.

The last clause above is beneficial for NRI’s returning to India after living abroad for many years since it will give them more time without taxing their global income.

 

 

Do note that these are broad-based observations and not necessarily one-size-fits-all, do consult your financial planner / advisor for customized advice on your particular situation.

 

 

Finwise is a personal finance solutions firm that helps both NRI and resident individuals and families plan for their financial goals, follow their passions and achieve financial independence.

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