investing

Markets at all-time highs: How retail investors can ride the boom

Girish Ganaraj Equity Investing, Financial Planning, Moneycontrol.com, Personal Finance , , , 0 Comment
Markets at all-time highs: How retail investors can ride the boom

The 15 months between Jan 2022 to end Mar 2023 saw the market taking a protracted time correction, and the patience of investors who entered the markets during this period was severely tested. That said, the investor who showed the maturity and patience to stay on course, has been justly rewarded in the last 3 months from April 2023 to June 2023, through the sharp up-move.


But, as usually happens in typical boom markets, there are still investors hopping onto this bus. For these investors who are entering the markets now, the following 3 pointers would be pertinent to remember, as you experience the various shades of the market over the next few quarters.

 

Our latest article, published on Moneycontrol



https://www.moneycontrol.com/news/business/personal-finance/markets-at-all-time-highs-how-retail-investors-can-ride-the-boom-10982661.html

 

Image Credit: Moneycontrol

 

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

 

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Eight timeless truisms to start your engagement with money this New Year on a good note

Girish Ganaraj Equity Investing, Financial Freedom, Financial Planning, Moneycontrol.com, Personal Finance, Retirement , , , 0 Comment
<strong>Eight timeless truisms to start your engagement with money this New Year on a good note</strong>

Another year has come to an end, and another New Year has peeped into our lives. Every New Year, by its very birth, fills us with optimism, which in a way is good. And every New Year, we try to channelize that rejuvenated optimism into action through resolutions.

 

This is also a good time to go back to the starting line again, and a good way to do so is to re-affirm your belief in principles or truisms that resonate with you, and which you can build into your way of life. Let me share with you eight truisms that I find useful in terms of defining my attitude and my actions towards managing money.

 

 


Our latest article, published in Moneycontrol.



https://www.moneycontrol.com/news/business/personal-finance/you-will-work-shorter-and-live-longer-than-you-think-are-you-prepared-9837611.html

 


Image credit: Moneycontrol

 


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

 

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Hiring a Financial Advisor? Your investing style must be the deciding factor

Girish Ganaraj Equity Investing, Financial Planning, Moneycontrol.com, Personal Finance , , , , 0 Comment
Hiring a Financial Advisor? Your investing style must be the deciding factor

What type of investor are you and how actually do you manage your personal finances? Am guessing that this is not something that many of us are familiar with or will find easy to answer. Unfortunately, while it should be, personal finance is not as “personal” a topic to most people as personal health is.

 

 


Hence over the last many years, while we have seen many customers with regards to how they manage their personal finances, they themselves are not as clear as we can see it, and hence make the wrong decision about what kind of personal financial assistance they need.

 

 

That said, it is important to have the right fit between your type and the kind of professional help you take. This article helps you determine what kind of an investor you are and whether the current relationship you have with a financial advisor is of the right fit. Published in Moneycontrol.

 

 

https://www.moneycontrol.com/news/business/personal-finance/hiring-a-financial-advisor-your-investing-style-must-be-the-deciding-factor-7597681.html

 

 

Image credit: Moneycontrol

 

 

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

 

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

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance , , , 0 Comment
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.

“What problem of mine can you help me solve?”

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance , , 0 Comment
“What problem of mine can you help me solve?”

It is that time of the year, when everyone seems to be in a bit of a party mode. It is also that time of the year, when increasingly, school/college friends are meeting up for reunions! I was at one such reunion a couple of weeks back, and, as is oft the case, was meeting some friends after many many years. After many hugs and a few jugs of beer, during which time we reminisced about old times, discussions veered towards the serious stuff, including politics, the economy as well as catching up on each of us, both on the personal and professional front.

 

With everyone’s kids around similar age bands, there was some serious collective letting-off of steam about the pressures involved in being parents to children who preparing for their Std X or XII exams (Eg. don’t ever remember studying so much even for an engineering paper in our 3rd year as compared to what kids nowadays have to do for a Std X paper, OR how the current standard of Maths and Science in Std X is akin to what was done in 1st or 2nd year graduate courses in our generation!)

 

Things then moved on to what we were doing on the professional front and how we were coping with the pressures on the job, the state of the economy, and so on. I had left my corporate career to join my spouse in our small personal financial planning and advisory business and when I explained that I was a financial planner, there were the usual reactions – how exciting it must be to be on our own, how courageous we were to have taken such a step, some questions on how I was liking it, etc.

 

Of course, there were some who also wanted to know what exactly financial planning was, and what exactly it was that I do, which again is something that I am (by now) used to. I then (as usual, passionately) launched into a description of what we do as financial planners, how it helps people, and what our typical assignments are. Things took an interesting twist, when one of them asked a very interesting question – “What problem of mine can you help me solve?”

 

While I of course answered the question and the follow-ups that came post that, it set me thinking. As I have discovered over the past many months, over various interactions with customers and others, financial planning means different things to different people. Importantly, it actually is “solving different problems” for different people, as long as the problems related to money. In fact, it actually doesn’t matter what I say I do as a financial planner, as long as people, including my customers see that I am helping them solve some money problem of theirs, which for them becomes “their understanding” of financial planning.

 

So, what “money problems” can a good financial planner-adviser help you solve?

 

 

The “LIVING BEYOND MEANS” problem

A few people we meet are earning well and spending even better. No, it doesn’t mean that they don’t have any savings or assets, just that they underestimate the needs of the future while getting hooked onto today’s pleasures. For such a person, a financial planner acts as a quick wake-up call, who puts things in perspective, and is a catalyst for habit changes.

 

 

The “TOO BUSY TO GIVE TIME” problem

Quite a few people we see are financially prudent, but are successful individuals, so caught up in their day-to-day work and life that they are simply are unable to spend quality time on growing their money. Their investment decisions therefore are impulsive, driven by products that get sold to them or event-driven eg. taxation insurance. They end up collecting a disparate set of investments, lacking purpose and inefficient in performance. In such cases, a good financial planner can help become both the filter to weed out wrongly-sold or ill-intended products as well as the channel to invest their money in vehicles that are both risk-appropriate and goal-appropriate.

 

 

The “INCORRECT ASSET MIX” problem

Many customers in the middle years bracket (age 40-50, double incomes, good jobs) are reasonably secure on the wealth creation and savings front. Like most of their generation, they own multiple houses, and while these were popular investment avenues, they are not necessarily the right asset-mix for future goals like children’s education and retirement, due to their illiquidity, as well as the current question-mark on long-term appreciation prospects. For such customers, a good financial planner helps them restructure their portfolio, keeping their risk profile and goal horizons in mind.

 

 

The “WHERE TO INVEST” problem

Some customers we meet are both personal finance savvy and investment-aware, meaning they have a good handle on their financial position as well as understand most investment asset classes and their risk features. That said, they lack the time as well as inclination to identify the right products, which will give them the right performance metrics while keeping in mind their interests and their risk appetite. In such situations, a good financial advisor helps provide the right mix of adequately diversified high-quality products to meet their needs.

 

 

The “NEED PEACE OF MIND” problem

Lastly, a few are completely sorted and only need a bouncing board to help validate their approach as well as decisions. Some may be good on the financial investments front but are inadequately prepared to face unplanned challenges in their life in case of unforeseen events. For such people, a good financial planner provides peace of mind and a tangible improvement in quality of life by allowing them to outsource their worrying nature as well as the outside chances of having uncovered risks.

 

 

Whichever it is, suffice it to say that a good financial planner/advisor’s primary role is to “solve money problems”. So, rather than try and understand from prospective financial advisors what they do, ask them – “What problem of mine can you help solve?”

 

Credit: M, a good friend from college whose pertinent question not only made me pen this, but also helped hone our customer propositions.

 

Image credit: Mohd. Hasan, Pxhere

 

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.

With even banks failing, which asset class is safe enough for me to invest?

Girish Ganaraj Equity Investing, Financial Planning, Personal Finance , , , 0 Comment
With even banks failing, which asset class is safe enough for me to invest?

The last couple of years have not been kind to investors at all. Equities (the broader indices) have near-crashed, debt mutual funds have also sprung unpleasant surprises, real estate has languished. And if things couldn’t get any worse, the so-assumed last bastion of safety for investors – banks, has also been breached.

 

In the last few weeks, two specific pieces of bad news has hurt investors and further spooked markets which already were like a cat on a hot tin roof. The first relates to the NPA woes of Yes Bank, and despite the repeated assurances of the management, investors are panicking and not only are its shares being dumped by investors and employees, there are anecdotal stories of FDs and even basic accounts being moved.

 

The second piece of news is far more chilling to the retail investor. The RBI suddenly froze all accounts and transactions of PMC (Punjab & Maharashtra Cooperative) Bank, a medium-sized cooperative bank, throwing its depositors and customers into serious emotional turmoil and financial crisis. It turns out that nearly 3/4ths of its loans are NPA (non-performing asset, which in simple words means – unlikely to be paid back, at least in whole), having been advanced to a single customer (in brazen violations of existing regulations), which has gone bankrupt. What is sad is that there seems to be not much hope immediately in store for the thousands of retail investors who had deposited their hard-earned savings in the bank, and whose monies and access to liquidity has got stuck all of a sudden.

 

This leads me to the titular question – “As an investor, which asset class is safe enough to invest?” While I am sure this question is on many investor’s minds, this question is better answered by flipping it and instead asking oneself – “As an investor, how much do I understand the risks?”

 

Let me explain further. Most of the time, investors burn their fingers because they invest without fully understanding the products and the risks that they carry. Usually the only understanding of risk that they tend to have is volatility, which they then convert into a perception of capital protection. Ie. Equity is very volatile, and capital loss can be significant. Debt is not at all volatile and is like an FD, therefore capital protection is guaranteed.

 

Unfortunately, this is an incomplete picture of the risks that the products carry. At a recent seminar I attended, a speaker used the iceberg metaphor to depict the unseen factors behind results (success or failure) and it is apt here as well. Risk is also like an iceberg. While some part of it is seen, many parts of it remain unseen. And importantly, as an investor, while it may not be possible to identify all the risks (ie. many parts of it will remain unknown), it is necessary to understand and estimate it, to be able to manage it.

 

Eg, In the case of Equity, volatility is seen as the primary risk, but actually that’s not the risk investors should worry about, since over the medium to long term, the volatility subsides substantially. That said, business risk (how will the company perform) and concentration risk (% share of the company in the overall portfolio) are important risk factors that need to be managed.

 

In the case of debt, investors have some understanding about interest rate risk, since they know that FDs when renewed may be at a lower or higher rate, depending on the prevailing interest rate. On the other hand, the general investor belief about debt is that capital protection is guaranteed, and hence one sees a bee-line for some of these corporate deposits or debentures, which offer much higher rates vs the prevailing rate in the market. Key risks that investors ignore in the case of debt are credit risk (what if the company fails to pay either the interest, or worse, the principal as well) and business risk (what if the company you are putting your money in has bad lending practices and hence sinks eg. PMC Bank).

 

So, leading back to the question we asked originally, unfortunately, the answers aren’t black-or-white. Investors would be prudent not to chase so-called “safer” asset-classes basis their past experiences. They should instead spend time understanding the risks involved and managing them. Your investment is safe only if you have taken the necessary and right steps to manage the risks involved in those investments. Managing the risks involve having the right asset allocation basis your (the investor’s) investment time-horizons as well as appetite for risk, identifying the right investments within each asset class, as well as making sure that there is adequate diversification, both across and within asset-classes.

 

While the above is not rocket science, having both, the right expertise (analysis and research) and pain-staking effort (regular review and course-correction), is required. And importantly, the need to “unbias” yourself while evaluating your choices and taking your decisions is essential. If you are new or busy, then having access to a trusted advisor will help you manage your portfolio better in terms of both risk management as well as adapting the portfolio to best suit your needs and goals.

 

To summarize though, remember – understanding the risks is key to determining safety of your investments. Without adequate understanding, even the safest-seeming investment can turn out to be super-risky, while with some level of understanding and risk-management, investors can navigate their way safely through even seemingly high-risk investments.

 

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 by MoteOo from Pixabay

Managing our fears while investing our money

Girish Ganaraj Financial Planning, Personal Finance , , , 0 Comment
Managing our fears while investing our money


“Planning is bringing the future into the present so that you can do something about it now.” – Alan Lakein


While we have always lived in uncertain times (is there any other kind?), none of us actually welcome uncertainty, especially in our personal lives. As human beings, we avoid uncertainty – just evidence the popularity of daily horoscopes or the rush for numerologists and astrologers.


While we are fearful of uncertainty, we are generally good at managing it. One of the ways one can manage uncertainty is by preparing for it. One way to prepare well for uncertainty is to plan for the probable outcomes.


In many facets of our life, we manage uncertainty very well. A person catching a regular train to work keeps a buffer of a couple of minutes to reach the station to account for a sudden traffic jam. He will also have an alternate plan to reach work in time, just in case the train is missed (eg. take a cab). While this may seem a very basic example, this principle is employed everywhere by us.


Also, when we plan for uncertainty, we plan suitably keeping in mind the “risk”. We make sure that we don’t take more than an acceptable amount of risk for a given event, depending on the severity of the uncertainty and the opportunity cost of failure. We use a “margin of safety” to manage uncertainty and the higher the uncertainty or the higher the stakes (probable losses), higher is the margin of safety. The whole objective is to try and make sure that the plan doesn’t fail, except in extremely unforeseen circumstances.


Eg. in the above case, in order to catch a local train, one would be comfortable reaching the station about a few minutes before the departure time. But in case of an airplane journey, one generally reaches the airport nearly 1.5-2 hours before the journey. This is despite knowing that the check-in counter closes only 45 minutes prior to departure. In this case, we keep a higher buffer because the “cost” of a missed flight here is much higher than the cost of the missed local train.



So how is this relevant to Investing? When we invest our hard-earned money, we wish to reduce uncertainty. Hence, we seek surety in returns. We also fear the risk of capital loss, even if it temporary. So, how does one handle these fears? Let us attempt to answer this in light of what we learnt from the above quoted examples.


One lesson is to choose the appropriate asset class depending on the time-horizon of the investment. When you do that well, time is the “buffer” that ensures that “risk” (eg. market volatility) gets evened out and generates the necessary return over the long term. Going back to our example – when we have enough time on our hand to reach the airport in time, does an unforeseen traffic jam (or a punctured tire) worry us? The answer is no, because we know that this is temporary, and we have enough time to reach our destination comfortably.


Another lesson is to have a “margin of safety”. As a retail investor, not following the herd to jump in when markets are booming would ensure that “margin of safety” is not compromised. Making sure that your asset selection is in the right products and in the hands of accomplished managers also helps manage this risk fairly successfully. After all, trying to catch a flight with 30 minutes left (before counter closes) versus 5 minutes, would make your journey so much more worry-free in terms of experience, even with the unplanned traffic jams and punctured tires, wouldn’t it?


Having fears while investing your money is natural. They cannot be wished away. But they can be managed and overcome by implementing these lessons. Having a plan for your financial goals, which identifies the right asset classes and investments to meet them, can make your investing journey a far more peaceful one, despite volatilities that will be faced along the way. And having a good financial planner to hold your hand through the planning journey, while keeping in mind your needs and risk appetites, will make sure that you will enjoy your present, secure in the knowledge that your future is also in safe hands.


Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.


Image credit: Gino Crescoli, Pixabay.com

Are you being Penny wise and Pound foolish?

Prathiba Girish Financial Freedom, Financial Planning, NRI, Personal Finance, Retirement , , , , , 0 Comment
Are you being Penny wise and Pound foolish?

I have been conducting financial wellbeing camps at corporates for a few years now, and a couple of questions invariably crop up at the end of the session.   One, can you give us a few good MFs to invest in?  Two, what about investing in direct plans, they are cheaper right?  Three my advisor doesn’t call me frequently to review my funds, shouldn’t he be?

Three questions which sound very different from each other, but are connected to the need of the customer to have access to expert advice so that they can follow a DIY approach to investing.  This is natural and a good thing even, when the person concerned has adequate time and knowledge to use this information for his benefit.  This is where many of them overestimate their ability and have perfect reasoning too. Let’s dwell deeper into each of these questions.

Can you give us names of a few good MFs to start investments in?

This is a very difficult question to answer, without having any other details.  Typically, before recommending an investment to someone, we need to know what is the purpose of investment. This gives us advisors two important data points, which are

  1. The importance of the goal
    • can you postpone it without grave consequence? Example. foreign trip. The same may not be true for child education.
  2. The time available for investments
    • This is crucial to understand as well, to enable making the decision of whether to invest in equity or debt

What about investing in direct plans?

This is a good way to invest, and yes, it is cheaper to go for direct plans.  This comes with a condition though, only and only if you have the knowledge and time to devote to this. Many HNIs and corporates use direct plans, but they have no problem paying a professional for advice and recognise their limitations in being effective without advice.

 Unfortunately, this is not true for most retail clients, where paying a fee for advice is not an easy decision.  As they say there are ‘no free lunches’, if you read about a particular investment on media it may be relevant today, if you invest and forget to check its relevance on a periodic basis, you have no one but yourself to blame. In such a situation, the money saved by going direct may not be worth it when you could have had a financial advisor to guide you and put your interests first and review your investments on a periodic basis for such risks.

 

My advisor doesn’t call me?

 I meet someone who said “my advisor never calls me to review my funds or with suggestions”.  In the course of the conversation, I realised the client had invested funds for which the compensation to the distributor was a few hundred rupees (this info is readily available in the consolidated statement received by investors every month from NSDL/CDSL).  His expectation of having a review and constant interactions were therefore not in line with what was feasible.

Note though that even if he had invested substantial amounts, constant conversation and change is not required. Investing (once done post adequate due diligence) is very boring and as long as you or your advisor is monitoring it periodically, there is no need for constant action. Hence, it is better to get clarity on the nature and frequency of interactions when you sign up for advice.

The value added by good advice goes much beyond helping you choose a scheme to give you returns in line with your needs. It is more holistic in nature and helps you solve your financial puzzle.  You will be guided through turbulent times, because remember, investing is going to be volatile. Your advisor will be able to temper your expectations so that market down turns are not a shock it can otherwise be. Another important aspect where a good advisor adds value is assess your risk appetite and tailor your investment plan accordingly.

How do I find such advisors you ask?  Interact with them to find out how the advisor plans her own finances, and ask them the above questions. If they answer with a string of names for the first question, they are not the type of advisor you are looking for. Understand how often you would be interacting, and how they would be getting compensated. Also, check which category you would figure in their current list of clients, these questions should help you zero in the right person for you.

Finwise is a personal finance solutions firm that helps individuals and families plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Image credit: Stevepb, Pixabay.com

Budget 2019 – How does it affect your individual personal financial plan?

Prathiba Girish Budget, Financial Freedom, Financial Planning, Personal Finance, Tax Savings , , , , , , , 0 Comment
Budget 2019 – How does it affect your individual personal financial plan?

The interim budget was presented on 1st Feb 2019 and has already receded to the background in most conversations. Now that the dust has settled as well as clarity obtained on a few new proposals, it is a good time for us to look at and quickly recap how this year’s interim budget weighs upon our personal finances.

The one thing which is usually on every salaried person’s wish list from the budget year after year is tax breaks, and this time we did see some welcome changes. A lot of positive moves for those in lowest tax bracket and some for the mid and high-income category too.

No tax if taxable income below Rs. 5 Lakhs, standard deduction raised from Rs. 40,000 to Rs. 50,000

Rebate of Rs. 12,500 has been given to people with taxable salary of upto 5 lakhs, thereby ensuring that people belonging to this group will pay zero tax. Note that if your taxable income is higher than Rs. 5 lakhs you will continue to pay 5% tax for income from Rs. 2.5 lakhs to Rs. 5 lakhs.

The key word here is taxable income, meaning income after considering all deductions. This means that people with gross incomes higher than Rs 5 lakh, in fact upto Rs 10.35 lakh can end up paying zero tax, assuming the person has made maximum investments basis eligibility.

Sample illustration on how to calculate taxable income post all deductions

The attached table clearly illustrates how a person with gross income of 10.35 lakhs will still avail of the rebate and end up paying no tax. This is for someone with no HRA, donations or education loan, a person having any of the above will end up paying no tax on even higher incomes than Rs 10.35 lakh. The fact that a person earning close to Rs 90,000 a month can end up paying zero tax if she plans her investments is a huge positive.

The standard deduction which was at Rs 40,000 has now been increased to Rs 50,000. This benefit is available to people across all income slabs and not just < Rs 5 lakh pa.

Limit for deduction of tax at source (TDS) for interest on FD has been raised from Rs 10,000 pa to Rs. 40000 pa

This will come as a relief to many pensioners as well as people having FDs as a contingency asset. With lower limits of TDS, one needed to fill forms and submit it on time to avail of non-deduction of TDS. This will be a welcome change making the process hassle free.

No tax on second self-occupied house on notional rent

People having two houses were required to pay tax on notional rent on the second house, even when they choose not to rent out their premises. This is a very thoughtful benefit and has been extended given the fact that the number of working couples who are forced to work in different cities to pursue their careers and build their lives is increasing. Hence going forward, people who have two houses due to various reasons can now breathe a sigh of relief.

You can reinvest your long-term capital gains in two houses instead of one.

If long term capital gains accrued on sale of a house does not exceed Rs. 2 crores, then you can avail capital gains re-investment benefit across two residential houses instead of one under section 54. This benefit is available to an individual only once in a lifetime. This again is a thoughtful benefit extended, keeping in mind inter-generational purchase of houses, due to greater nuclearization of families.

However if the capital gains exceed Rs 2 crore than old rules will still apply and to avail of the benefit you will have to invest in 1 residential house.

In our opinion though, in case one is not obliged to re-purchase a house (to meet familial needs), it will make better sense to invest capital gains in Sect 54 EC bonds for a period of 5 years rather than locking up capital in in low-yielding real estate. Post the lock-in period, one can look at financial assets which have potential to make much higher returns.

Pension for unorganised sector workers

In our opinion one of the highlights of the budget was the pension scheme announced for unorganised sector workers. We all see our maids, drivers and numerous other people struggling to make ends meet and retirement is definitely not on their priority. Pradhan Mantri Shram Yogi Maandhan Yojana promises a minimum pension of INR 3000 pm at age 60 on minimum monthly contributions.  A 29 year old, will need to deposit INR 100 a month to avail of this pension. This scheme now provides a much needed social security net for the huge number of unorganized sector workers across the country and each one of us should ensure that our safety nets ie. our domestic helps avail of this scheme so that they too can have their own safety nets.

Finwise is a personal finance solutions firm that helps both residents and NRIs plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Hype and hysteria surround Indian weddings – what about your investments?

Prathiba Girish Financial Planning, Personal Finance, Retirement , , , 0 Comment
Hype and hysteria surround Indian weddings – what about your investments?

Weddings are big in India, it is an event for which people plan and save for years, sometimes decades. The recent celebrity weddings have the attention of the entire nation. There is so much interest in what did the bride and the groom wear, the jewellery, the locations, the food, the guests… Everything is scrutinised and fed for public consumption which we lap up hungrily. What’s wrong with that? Who doesn’t want to look at beautiful people and extravagant weddings? True, it’s all quite harmless to be an animated spectator to a celebrity wedding.

 

But look closer home and chances are that you will see the same thing being repeated. The focus is always on the event. Somewhere, one forgets that the wedding itself signifies a happy beginning rather than a happy ending.

 

Curiously, in my many meetings with customers, I have noticed that we often behave the same way when we invest. We speak to a lot of people, make a conscious choice of the product and pat ourselves on our backs when we actually execute our decision to buy. But what after that?  Are these reasons for the investment not important to remember later, when one decides to take a sudden decision to liquidate that investment prematurely due to a sudden (hitherto) unplanned need?

 

All the initial research and focus signify a happy beginning in your investment’s journey and its extremely important to stay focussed even later during the lifetime of the investment. One needs to invest with a purpose and a clearly articulated expectation from the investment. Expectation is again a two-way street where you need to put down what is it that you will commit to do eg. quantum of money you are willing to invest, the time for which you will stay invested and therefore the kind of returns you expect to make.

 

With many of my clients, I have noticed simply naming the investment with the purpose brings in a lot more focus and avoids knee jerk reactions which could greatly harm the portfolio. For eg. if you are saving for your child’s education you could name it “Anu education fund”.  The other thing which keeps you on track is understanding the volatility and having realistic expectations from your funds. 

 

Remember, while the act of investing itself is the wedding, the financial plan required to support it is the marriage, and just like in a marriage, it takes a lot of effort and time to keep investments on track.  You must review your investments with your planner at regular intervals and evaluate if you would invest for the same purpose in the same scheme if you had to do it now. If the answer is yes then you are sorted, else it’s time to rethink and learn from your earlier decision.  Wishing you the very best in your wealth building journey.

 

We would like to thank our unnamed friends whose wedding image has been used in this blog, with permission.  

 

Finwise is a personal finance solutions firm that helps people plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at prathiba.girish@finwise.in or +91 9870702277.