Recent Blog
A blog by Sandip
If your decision of making investment or choosing insurance policies has often been taken for the sole purpose of saving some tax – then you have reasons to worry. This tendency of jumping on the bandwagon i.e. saying ‘yes’ to a product just because it offers some tax saving can backfire or do harm to your overall portfolio of investments and insurance. Let us see, how.
**Tinkering with the horizon**
When an investment allows to claim deduction from your taxable income under some section, then it often comes with some lock-in period. In other words, you have to sacrifice liquidity for availing the tax benefits. This can be problematic. If you may need money in short-term, then locking-in majority of your investment will make you feel helpless and force you to take desperate measures. Or, if your financial goal may require money sooner or later than the pre-decided timeline – then you will be stuck with your locked-in investments.
**Ignoring Risk Profile**
If I say capital gains that you made from your equity investment is taxed much lesser or not even taxed at some situations compared to your investment in other asset classes (debt or commodity) – does that mean you ignore your risk profile, goal horizon and invest maximum in equity? You should not.
**Compromising Asset Allocation**
Investing separately in Gold Fund, International Equity Fund or Debt Fund is not that tax efficient. But that does not mean that you ignore your exposure in such funds and instead invest only in multi-asset allocation fund just because that is tax efficient (though that can be a topic on its own for some other day).
**What should be done?**
Give achieving your financial goal the topmost priority. Check your risk profile, consider your surplus, find out how much return you should earn – choose your asset class and investment product accordingly. If features of a tax saving product get perfectly aligned with your goal and risk-return profile – then of course go ahead and make that part of your portfolio.
Read More →
A post by Sandip
In a recently conducted survey by an insurance company on urban Indians across 25 cities, revealed that top priority goal for maximum investors (62%) is to accumulate enough fund for their children’s education and marriage. Not surprising. The tendency of choosing investment product for the same varies. Though almost any investment product can be linked to the goal of your choice, often investors prefer to invest in a product which is labelled accordingly. Today let us discuss the features, pros and cons of one such ‘labelled’ product – **Sukanya Samriddhi Yojana** (SSY).
**Features**:
The scheme currently provides an interest rate of 8.2% (For Jan -Mar 2024 quarter). This rate gets revised every quarter.
The account can be opened at any India Post office or branch of PSU banks and few private sector banks (ICICI, HDFC, Axis).
The account can be opened anytime between the birth of a girl child and the time she attains 10 years of age. Only one account is allowed per child. Parents can open a maximum of two accounts for each of their children (exception allowed for twins and triplets).
A minimum of Rs. 250 must be deposited in the account initially. Thereafter, any amount in multiples of Rs 100 can be deposited. However, the maximum deposit limit is Rs. 150,000 in a financial year.
The account reaches maturity after 21 years from the account opening date (or at any time after the girl gets married after the age of 18 years). Deposits in the account can be made for 15 years from the date of the opening of the account. So, in the last 6 years, the account will only earn only the applicable rate of interest, no fresh deposits will be made then.
Sukanya Samriddhi Yojana is **an EEE (Exempt – Exempt – Exempt)** product from the taxation point, like PPF.
Partial withdrawal of up to 50% of account balance can be opted for the purpose of higher education only after account holder’s age of 18 years.
**Pros:**
Tax benefits are surely a plus here. The forced discipline is another plus point for many casual investors.
**Cons**:
The biggest con of this product can be the fact that it cannot be used for boys.
Also, the product seems more aligned to a girl child’s marriage than to her higher education.
Liquidity is a major concern here, as a parent may require funding any time after the girl child attains the age of 15-16 years.
Considering the low interest rate and limit on maximum investment that can be made in a year – the product alone can almost never be sufficient to achieve both the goals of higher education and marriage considering the current cost and high inflation.
**Conclusion:**
As you are investing here for the long term, starting here with higher equity exposure through mutual fund is definitely a good idea. Later, when the goal year comes nearby, safer debt exposure can be increased in your portfolio. Higher liquidity, no maximum limit on making investment, flexible topping up with additional investment – all these are definitely a plus here, provided you are disciplined and focused.
Read More →
Category
Mutual Fund
A blog by Sandip
An informed investor is always a better investor. Systematic Investment Plans (SIP) into mutual fund scheme is now so commonplace that many of us overlooks some of its features or characteristics. Thus, we remain not-so-informed investors after all. Same goes true for its cousins – SWP and STP. Let’s understand some of the not-so-common features of SIP, SWP and STP here. Let the fun ride begin.
**SIP – Systematic Investment Plan**
It is a nice, convenient package solution for making repeated additional purchases in a mutual fund scheme. We need to choose a particular date of the month, how long we are going to invest and a fixed amount that should get debited from our bank account and get invested in the chosen scheme.
Through SIP investments, we purchase some units of the scheme in the current NAV i.e. price per unit. Now suppose, you are doing SIP in an ELSS (Equity Linked Saving Scheme). In that case, number of units that you buy in each SIP transaction, will remain locked for 3 years. So, if you do a 12 months’ SIP in an ELSS, you would be able to redeem all the purchased units only after the end of 4 years from the starting date of your SIP.
SIPs can be topped-up i.e. instalment amount can be increased after every 12 months. This is a very powerful and practical feature of SIP investment that not many investors exercise. This way a goal can be achieved with less strain on your pocket at start.
**SWP – Systematic Withdrawal Plan**
It is a nice, convenient package solution for making repeated withdrawals / redemption from a mutual fund scheme. We need to choose a particular date of the month, how long we are going to withdraw and a fixed amount that should get credited to our bank account and get redeemed from the chosen scheme. This will go on till the time your fund lasts or the mentioned fixed tenure – whichever is earlier.
Like step-up SIP, step-up or inflation adjusted withdrawal through SWP is not that straightforward, but still can be achieved with some minor adjustments and tweaking. But it makes perfect sense, that your withdrawal amount does not remain fixed, and you get to withdraw slightly larger amount after every 12 months to support the increased household and lifestyle expenses for instance.
Very few investors know / understand / realize that the entire withdrawal amount from SWP is not taxed but only the resultant capital gain part. Let me explain it. In every withdrawal, you redeem some number of units, say X. Now, these X number of units have some purchase NAV and as well as sale NAV. Your capital gain will thus be calculated as – Number of Units Redeemed * (Sale NAV – Purchase NAV).
**STP – Systematic Transfer Plan**
Suppose you are not feeling that confident in investing a large lump-sum amount of money into an equity scheme at a go. Instead, you want to get it invested within, say, next 6 months’ time in a systematic manner while earning interest on the not-invested money higher than the savings bank account. Again, it may happen that you change your mind after 4 months and want to invest the rest amount immediately as you feel that the market has reached its bottom. Such flexibility can only be offered by STP.
To make STP work, you need to park (i.e. invest) your money first into a liquid scheme of the same mutual fund house whose equity scheme you have chosen as the final destination of your money. Thereafter based on your given instruction, a fixed amount of money will get invested into that equity scheme from the liquid fund where you have parked your money into, every month in a particular date or at whatever chosen frequency.
STP work best when market keeps on tanking from your date of investment. Thereby, you keep on buying larger sum of units with the same investment amount. Or in other words, if you are feeling bearish about the market in near term or expecting huge volatility, then STP could be the right choice. Otherwise not.
Read More →
Like in every aspect of life, we behave quite differently in managing our finance than mentioned in books and in theories. Of course, those books are written for our benefits and those theories are formulated for our financial wellbeing, but still, most of us rarely could follow such guidelines ditto in our everyday life. How funny or contradictory it may sound, but it is the reality. Let’s discuss few such areas of personal finance where theories and practical implementations differ a lot. Again, such things cannot be said in general, as there are exceptions, but still such a discussion may hit us when we will tend to divert again, if ever, from the theory.
**Deciding on Financial Roadmap** –
This includes fixing a financial goal with definite time-period, target, and priority. This may sound simple but requires serious time and effort. Very few people do it with sincerity. This is either done in half-hearted casual manner or never done it at all. This exercise often gets postponed for ever. For example, finding out the current cost of education to plan for child’s higher education goal, is often not done properly. Even if the goals are fixed and planned, implementation of the same are often not done immediately or required investment amounts are compromised.
**Related Actions (e.g. review / documentation / technology)** –
This is by far the most ignored area of managing personal finance by many. People rarely sit for a review session with their advisors in time. Also, the outcome of review is rarely followed by many. Still many investors do not include their family members in this journey. Documenting all investments and insurance in one place, is again an ignored area of action. Getting acquainted with latest technology, following its safety guidelines and best practices, are also overlooked unfortunately.
**Behavioural Finance** -
In books or in insights shared by famous investors, it is frequently mentioned, that real wealth is created through long-term regular investing – but very few of us rarely practice this (unless we forget about an investment!). Though we are not supposed to compare the returns generated by our portfolio with others – still many of us do that and feel good or bad about this. Coming out of an investment is equally difficult for many of us – as either we feel greedy or egoistical about it.
The more seriously we follow the sermons of great investors – the better for us and our family. Let’s give it a try, once more. Never say never. All the best!
Read More →
A blog post by Sandip
If your decision of making investment or choosing insurance policies has often been taken for the sole purpose of saving some tax – then you have reasons to worry. This tendency of jumping on the bandwagon i.e. saying ‘yes’ to a product just because it offers some tax saving can backfire or do harm to your overall portfolio of investments and insurance. Let us see, how.
**Tinkering with the horizon**
When an investment allows to claim deduction from your taxable income under some section, then it often comes with some lock-in period. In other words, you have to sacrifice liquidity for availing the tax benefits. This can be problematic. If you may need money in short-term, then locking-in majority of your investment will make you feel helpless and force you to take desperate measures. Or, if your financial goal may require money sooner or later than the pre-decided timeline – then you will be stuck with your locked-in investments.
**Ignoring Risk Profile**
If I say capital gains that you made from your equity investment is taxed much lesser or not even taxed at some situations compared to your investment in other asset classes (debt or commodity) – does that mean you ignore your risk profile, goal horizon and invest maximum in equity? You should not.
**Compromising Asset Allocation**
Investing separately in Gold Fund, International Equity Fund or Debt Fund is not that tax efficient. But that does not mean that you ignore your exposure in such funds and instead invest only in multi-asset allocation fund just because that is tax efficient (though that can be a topic on its own for some other day).
**What should be done?**
Give achieving your financial goal the topmost priority. Check your risk profile, consider your surplus, find out how much return you should earn – choose your asset class and investment product accordingly. If features of a tax saving product get perfectly aligned with your goal and risk-return profile – then of course go ahead and make that part of your portfolio. Otherwise not.
Read More →
Category
Mutual Fund
A blog by Sandip
Money habits make or break us. It has been proved time and again.
But based on our money habits, how are we perceived by others around us? As it is all about a character trait, it is therefore very personal. You may feel concerned about it, or not. But if you are ready for a casual discussion around this topic on a Sunday morning – here you are! Read on.
Habits build characters. Taking a cue from that, our spending / saving habits mostly lead us to become either of the three characters – spendthrift, miser or frugal. How are they different from each other?
**Spendthrift** – A spendthrift is an individual who spends money extravagantly and often beyond their means. They engage in impulsive and excessive spending, often on non-essential items or luxury goods. They typically do not follow any budget. Spendthrifts are impulsive spender. They live in the moment, not much concerned about the future consequences for their spending habits.
They mostly save little and inconsistent in their saving habits. It is not uncommon to find them taking loans to fund some of their expenses.
**Miser** – A miser is reluctant to spend money even when it is necessary. This impacts their social life negatively. Extreme miserliness often leads to compromising on quality of life. This could mean, for example, cutting short on a vacation trip wherever possible, not indulging in any hobbies whatsoever etc. Misers are in a way obsessed with their money and are afraid of losing it all the time. They almost never or rarely socialize. Of course, they mostly end up accumulating good amount of wealth but rarely enjoying that in their lifetime.
**Frugal** – Frugality is the practice of being economical and avoiding unnecessary expenses. Frugal individuals make thoughtful choices when it comes to spending, stick to a budget, prioritizing value and necessity over impulsive purchases. They enjoy life often by making some creative choices in case budget does not allow them doing that. In short, they make most of what they have. They save that much what is necessary to achieve a financial goal. They avoid debt to maintain a certain lifestyle or for buying luxury goods.
Being frugal brings high probability of achieving financial freedom in life while maintaining a balanced lifestyle and not compromising on quality of life. Life, of course, does not go in straight line. It has its own demand and priorities change along the way.
Still, the money habits that we build and follow, makes a solid impact in living a stress-free, guilty-free and worry-free life. All the best!
Read More →
Category
Mutual Fund
Financial freedom is a dream for many, where you have the resources and flexibility to live life on your terms. While it may seem like an elusive goal, mutual funds can be a powerful tool to help you achieve this aspiration. In this blog, we will explore how mutual funds can contribute to your journey to financial freedom.
**→ Diversification and Risk Management**
One of the fundamental advantages of mutual funds is their ability to diversify your investments. Diversification means spreading your money across a range of assets, such as stocks, bonds, commodities. By investing in a mutual fund, you become a part of a larger pool of investors, which, in turn, allows the fund manager to diversify your investments effectively. This diversification helps to reduce the impact of poor-performing assets and manage risk.
**→ Professional Management**
Mutual funds are managed by experienced fund managers who make investment decisions on your behalf. These professionals are equipped with the knowledge and expertise to navigate the complex world of financial markets. They conduct research, analyze market trends, and strategically allocate the fund's assets to maximize returns while mitigating risks. This professional management ensures that your investments are in capable hands.
**→ Accessibility**
Unlike some investment options that require substantial initial capital, mutual funds offer accessibility to a wide range of investors. You can start investing with a relatively small amount of money. This accessibility makes mutual funds an attractive choice for individuals at various stages of their financial journey.
**→ Liquidity**
Mutual funds provide liquidity, meaning you can easily buy or sell your units. This flexibility ensures that you have access to your money when you need it. Whether you're saving for short-term goals or maintaining an emergency fund, mutual funds allow you to maintain financial flexibility.
**→ Automatic Investment with SIPs**
Achieving financial freedom often requires discipline and consistent saving. Mutual funds offer a solution through Systematic Investment Plans (SIPs). SIPs allow you to set up automatic, periodic investments, helping you save and invest consistently. Over time, this disciplined approach can significantly increase your wealth.
**→ The Power of Compounding**
Mutual funds harness the power of compounding, which can significantly impact your wealth over time. As your investments generate returns, those returns are reinvested, and your investment base grows. This leads to exponential growth and can be a key driver in achieving your financial goals.
**→ Flexibility**
Mutual funds come in various categories and cater to different investment goals. Whether you're saving for retirement, your child's education, or buying a home, there is likely a mutual fund category that aligns with your specific financial objectives. This flexibility allows you to tailor your investments to meet your unique needs.
**→ Transparency**
Investors receive regular updates on their mutual fund investments, ensuring transparency. You can easily track the performance of your investments and make informed decisions about your portfolio.
**→ Tax Benefits**
Certain mutual funds offer tax advantages. For example, Equity-Linked Savings Schemes (ELSS) can provide tax deductions under Section 80C of the Income Tax Act.
→ Goal-Oriented Investing
Mutual funds can be a vital tool for goal-oriented investing. Choose funds that match your financial goals to help you reach them in an organized way. This approach ensures that you are not just saving money but actively working towards your aspirations.
**Conclusion**
Financial freedom is not a distant dream; it's a tangible goal that you can work towards with the help of mutual funds. Through diversification, professional management, accessibility, liquidity, compound growth, and other advantages, mutual funds provide a path to financial independence. To make the most of this investment option, it's essential to select funds that match your risk tolerance, time horizon, and financial objectives. Regularly reviewing your investments and staying committed to your goals will help you realize your vision of financial freedom. So, start your mutual fund journey today and take the first step towards achieving your financial aspirations.
Read More →
Category
Mutual Fund
**How to invest in mutual funds without any prior knowledge about it?**
Investing in mutual funds can be a smart way to grow your wealth, even if you have no prior knowledge of the financial markets. Here's a step-by-step guide on how to start your mutual fund investment journey without any prior expertise.
**1. Educate Yourself:** The first and most crucial step is to educate yourself about mutual funds. A mutual fund is a pool of money collected from many investors which is managed by a professional fund manager. The manager invests the pooled money in a diversified portfolio of stocks, bonds, or other securities.
There are various types of mutual funds, such as equity funds, debt funds, hybrid funds etc. each with its own risk and return profile. Take some time to read articles, watch videos, and gain a basic understanding of these concepts.
**2. Set Clear Financial Goals:** Determine your investment goals. Are you investing for retirement, a major purchase, or simply to grow your wealth? Knowing your objectives will help you choose the right type of mutual fund and develop a strategy.
**3. Seek Professional Guidance:** If you're unsure about where to start, it's highly recommended to seek professional guidance. An expert can assess your financial situation, risk tolerance, and investment goals, and suggest suitable mutual funds thus reducing costly financial mistakes.
**4. Select a Mutual Fund:** Always makes sure that you choose a mutual fund that aligns with your investment goals and risk tolerance.
**5. Open an Investment Account:** To invest in mutual funds, you'll need to open an investment account. The account setup process is typically straightforward and involves providing some personal and financial information. The platform you choose will guide you through the necessary steps.
**6. Start with a Small Investment:** It's a good idea to start with a small amount of money, especially if you're new to investing. Many mutual funds have a minimum investment requirement, which can vary from scheme to scheme and AMC to AMC too. Make sure to check this requirement and ensure that it fits your budget. Starting small helps you understand how investing works without risking a lot of money.
**7. Monitor your investments:** After investing in a mutual fund, it's crucial to review your portfolio. You can track your investments through the online platform where you opened your account. Check the performance of your funds periodically and compare it to your investment goals. Be prepared to make adjustments to your portfolio if your goals change or if a fund consistently underperforms.
**8. Continuous Learning:** Investing is an ongoing process. As you gain more experience, continue to educate yourself about mutual funds and investment strategies. Read books, attend seminars, and stay updated with financial news. The more you learn, the better equipped you'll be to make informed investment decisions.
Investing in mutual funds without knowledge is possible, but it's important to know that all investments have risks. Mutual funds too can fluctuate in value, and it's possible to lose money.
If you ever feel uncomfortable making investment decisions on your own, don't hesitate to seek professional guidance. Education, planning, and expert advice can lead to a successful mutual fund investment journey.
Read More →