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HOW TO DO TAX PLANNING?

For proper tax planning exercise, it is always recommended that you approach your tax or financial advisor asap and sit with him for the same. Experienced persons who have done this many times would find tax planning easier. Even then, there is no harm in consulting your advisor for the same. For those intending to brush up their knowledge, you can always look out for tax planning related articles and list of avenues to save taxes. The following three step process is generally understood to be a universal tax planning process. Please note that this is a simplistic approach for individual clients which essentially covers the important aspects of tax planning.

1. Calculate Your Taxable Income: The tax is levied on your taxable income, so the first step is to ascertain how much your taxable income will be for the year. There are different heads of income and income in each of it is calculated and treated differently, so it is not going to be very simple. As the first step, you need to sit down and calculate your income from all these heads to arrive at your taxable income. There is no need to arrive at a perfect figure at this moment as this exercise is only to approximately arrive at the taxable income to know the extent of the tax savings you need to do.

2. Calculate spendings & savings eligible for tax breaks: During the year you may have, knowingly or unknowingly, done some expenses and investments which qualify for tax breaks. The most common sections to look for are 80C/80CCC/80CCD (for eligible investments), 80D (medical insurance premium), Section 24 (home loan interest) and 80G (donations). These are just examples and there could be many other sections applicable to you. An important thing to remember is that your spending /savings must have been done by you and the necessary supporting documents or proofs for the same is available with you. The idea here is to calculate the limits provided by IT rules which you have already exhausted under different sections and the balance still available for you to make use of.

3. Planning For Tax Savings: After knowing your taxable income, how much you will need to save and the avenues still available for you to exploit, the final step is to decide what further needs to be done to

save taxes. Frankly, it is your decision and many, at the lower end of tax liabilities, may choose to pay nominal taxes. But if you intend to save as much as you can in taxes, then you will need to plan making further investments. Explore all available avenues and plan your investments as per your preferences.

WHAT NOT TO DO?

In tax planning it is also important to not do few things which will defeat or dilute the whole exercise of tax planning. Any financial decision we make may have huge financial repercussions. Your decisions should be well-thought of, well researched and should be done carefully with patience. Here are few things which you should not be doing…

1. Postpone tax planning decisions further: We have been saving it for long. Tax planning is not a year-end exercise but a year beginning exercise. But if you are late or if you feel there is more scope to save taxes, your available time window is still open, but only for a few weeks. Remember, that tax planning, consultations have to be done now so that you have time to execute your decisions well in advance before 31st March.

2. Focus only on Tax Savings: In India, tax planning in itself is considered as a stand alone financial objective and activity by many. Frankly, nothing can be farther from truth. No investment or expenses should be done purely for the purpose of tax savings. Tax saving can be an additional incentive and objective for another primary objective or need which you should look to fulfill. Think about it, it can be better health protection, social service and so on or simply wealth creation.

3. Buy insurance for tax saving purposes: The idea here is already covered in point above but frankly it needs special mention as most insurance products are sold in these last couple of months purely in the name of tax savings. Please note that insurance is a good avenue and everyone should buy proper insurance policies but they should be driven by your insurance need. If the insurance policy fits the bill for proper insurance coverage which you ‘actually need’, then only think of buying that policy as you never know when you may need that coverage. Buying insurance, which is like long-term contract with low returns, for tax savings is not a good idea and there are better products for that purpose.

4. Investing more than needed: You can always go overboard after exhausting your limits available for tax planning and there is no downside in doing it. The idea behind this point is that do not make the mistake of a forced financial decision just to save taxes when you don’t actually need it. Since the tax saving avenues come with certain restrictions and/or limitations, it is better that we do not go overboard with them. Exceeding your tax saving limits is welcome when those financial decisions are driven by your financial objectives and other needs and not by tax savings.

When mankind created technology, it didn’t know that the latter would be the most irreplaceable ‘organ’ of the former. Technology has changed the way we work, the way we rest, the way we shop, the way we read, the way we play, indeed the way we live, and mostly for good.

It is now hard to imagine our lives without email, internet banking, online trading, WhatsApp, Facebook, Paytm or simply without a smart phone. If technology vanishes one day, it would leave us all in a haywire and would leave us handicapped to a large extent. Yes, technology has made our life comfortable but then at times, how we use technology can tarnish the good things if offers. With greater usage of technology, there also comes the responsibility to be more careful and avoid risks associated with technology.

You may have heard stories of someone’s bank account getting hacked and he got robbed of his money or a Facebook account getting compromised with offensive content then posted form it, or someone getting an offer letter from a company asking for R 50,000 for the placement facilitation process. These are a few instances on how technology is also being misused by people to hurt or rob other people. We often hear such instances but then what do we do? It is for us to understand the risks and also follow some practices to ensure that we do not fall prey to such traps.

 

 

How to be Safe?

So, what should you do? How to ensure that you and your digital content / information is secure? You don’t have to be a tech geek to protect yourself from cyber frauds, it’s simple, ‘you should be careful’. Think and act like a fish – don’t bite into baits thrown at you, do not swim into nets spread out and avoid areas where the predators / bad fish swim. We have listed down few things which can help you in the process:

1. Always use passwords: Keep all your computing devices and machines, including mobiles, password protected and keep it a secret. This will keep all your personal information and content safe.

2. Use Strong passwords: While keeping a password for any device or online /digital account, always make sure that you create a strong password with a combination of alphabets, numbers and special characters. Be careful in not using obvious passwords like names, nick names, date of births, etc. as passwords. This is very important and can prove to be very effective although it might seem inconvenient to you.

3. Physically protect your devices: If you are using a smart mobile / tab then you should be extra careful of its physical security. You have your world on your phone and someone might pick up your device and start exploring your world, may even take note of your passwords, or may simply put your world in his pocket and run away. If you have your phone’s identification info like the IMEI number then you may have better chances of tracking your phone.

4. Protect your connections / networks: Many of us may use wifi at home but how many of us protect it with strong passwords? It is also critical that you do not keep wifi hotspot / blue tooth or other connectivity features of your mobile devices open and not password protected. Always keep them off and password protected, especially when you are at public places.

5. Be extra careful using public networks: It is very important that one should be extra careful while using free or public networks available in spaces like hotels, stations, airports, etc. This is also true when you are using Internet at unknown places like for eg. cyber cafes. Unless critical, always avoid logging into personal accounts and doing financial transactions using such public /unverified private networks of any sort. They may be tempting but they might be very risky if you are not careful.

6. Do not choose save / auto-login options: Many websites and mobile applications, even the secure ones, might ask you to save your passwords. It might reduce your few seconds when you have to login the next time, but if your phone goes into the wrong hands, you are giving the key to all the secret gates decorated on a platter. A few extra seconds on manually entering passwords every time is totally worth it.

7. Never share OTP / Debit / Credit Cards details: Never ever share any OTP number you receive or any confidential information like personal details, card details, etc. with anyone either on phone or even if someone physically visits you and asks for the same. Any credible bank or card service provider would never ask you for such information and there is every possibility that such calls or visits are by fraudulent people.

8. Do not let your cards go out of sight: It is also important that you do not hand over your card and let it go out of your sight. There is every possibility that a person may copy all the card info and misuse the same later. Thus when you are eating out in hotels or shopping, always make sure that you pay with your card at the counter yourself, especially if it is an unknown place.

9. Clean your device before selling: If you are looking to sell your phone or your laptop, wipe out everything. Be careful in removing all browsing history, even softwares, applications, bookmarks, etc.

Double check for any data residing in anywhere. It is very likely that your new buyer will be curious to look for such data or traces of any information /content which he can use.

10. Do not fall prey to Scams: There are many instances where one may receive messages or emails asking for some personal information or messages promising jobs, money, etc. Do not fall prey to such messages which incite or threaten or request you to share any information or financial support for any reason whatsoever.

11. Other important things to do: √ Be careful in visiting proper websites of banks / social media accounts. Sometimes very similar looking pages may be sent in emails or listed in Google but they are not original sites. √ Be careful in downloading or installing any file from any unverified website. It may carry a harmful program. √ Be careful in connecting any third party device like usb / hard-disk or mobile etc. to your device as it may be infected. √ Always logout from your accounts after using the same from any browser at any place, especially outside home /office.

If you have been investing in Stocks, Bonds, FD’s, Real Estate, Mutual Funds, etc., so by now you must be having a sizable investment portfolio. This investment portfolio of yours, as you all know, is the key to living a peaceful financial future. And since it is such an important component of your life that it has the ability to control your future prosperity, so it must be of utmost quality and should fit well into your requirements at all times. Hence, it becomes imperative that you do a quality check of your Portfolio regularly.

Yours have some unique preferences and constraints, and the portfolio should take care of them besides generating returns. The investment portfolio must stand true to:

1. Your Risk Appetite, the risk associated with your overall Portfolio should not be more than you can digest and

2. Time Horizon as per your goals: The point of having an investment portfolio is, it should be able to provide for all your life goals, so it is important that your investments are in alignment with your goals.

The general trend of investing is random; a small FD in one bank, another one in another bank, some stocks, some mutual fund investments, a piece of land, few gold coins, a PPF investment, few SIP’s, and the like. This approach results in having a haphazard array of investments. So, the first step is to recollect and write down all the investments, asset class wise. Once you have a clear view of the entire Portfolio, the next thing to do is to ensure that it adheres to the above two points. It’ll be ideal to seek help from a financial advisor for the process.

Before re balancing the Portfolio to arrive at your ideal asset allocation, it’s important that you do a performance check of all the investments in your Portfolio. It’s important to analyze the overall portfolio performance as well as the performance of all the components that make up the Portfolio. Also, you must note that all the investment products are different, carrying different levels of risk and hence offering different returns. So, you must not just sell off an investment just because it is giving lesser returns than another. It’s important to do an Apple to Apple comparison, for example if a Mutual Fund investment is to be analyzed, it must be compared against it’s benchmark and with funds in the same category, and not with other funds or products within your Portfolio.

Another point to note here is, the investment must be analyzed on the basis of a relevant investment period. For example, if you are evaluating an equity investment, a one year or three year return analysis will not give you a clear picture, it can be way to high or it can be exceptionally low. You must consider a period of at least more than five years while evaluating equity.

Does your Portfolio contain investments which you don’t understand? Sometimes, investors tend to fall for the traps laid by investment agents, and they end up accumulating stuff which firstly, they don’t understand and secondly, they don’t need. So, if you are one such victim, it’s time to get rid of them.

Does your Portfolio contain a traditional Endowment plan as well as a modern term plan? If Yes, you must do away with the traditional endowment plan, because of low sum assured, so it doesn’t fulfill it’s primary purpose of providing protection, and also which is being taken care of by the term plan; and secondly because of the meager returns it offers.

Is your Portfolio Over diversified? Too many investments causes clutter. You don’t have to buy every new product that’s launched in the market. Over diversification can be as bad as Under diversification. So, if your Portfolio is loaded with products, there is need to simplify it.

The investments under each asset class must be linked to a goal and must match with the time left for the goal to arrive. You must note that your asset allocation is not an isolated activity, it is also dependent upon your goals. The distance to your goals and the amount required also influences your risk appetite and your portfolio composition.

Your financial advisor will be of immense help to you in analysing, reshuffling and cleaning up your Portfolio, so that it conforms to your Risk Profile, your Goals and your Investment Horizon. It is very important to have a professional guiding you in your overall financial planning process, who will ensure that you take informed investing decisions, who will take care that your Portfolio doesn’t lose track. So sit with your advisor and quality check your Portfolio. Also, Portfolio cleaning is not a one time activity, so do not miss the regular portfolio reviews with the advisor. It’s ideal to check your Portfolio at least once a year, or on the happening of certain events like selling a property from the Portfolio, marriage, divorce, child birth, etc. It’s like checking the progress of your dreams accomplishment.

For many of us, the topic of ‘managing’ our finances only hits us when we find our expenses regularly surpassing our income. That is, we start to have problems in shelling out our monthly credit card bills, or if no credit cards, you may be just finding yourself in need of one in the last few days of the month. Situations like these quickly brings us back to the ground and remind us of all those advices we received from parents about discipline and saving.

The stories of people who toiled long and hard to save money to pursue their one dream, no longer motivates us to save or develop monetary discipline, we want to enjoy our present to the fullest. In doing so if we encounter a problem, we are bound to use the quick fix – ‘a drastic cut to the expenses next month or till the finances actually come in shape again, or may be a small loan a credit card application etc.’

Problem with quick fixes is that, they very successfully delude us into thinking that it’ll will always be handy, making us even more delinquent for the future. Moreover, as the prowess of the marketer grows not just the new purchasers but even some of the most disciplined and experienced one find themselves slipping once or twice on unplanned purchases.

Well, we cannot ask the marketers to go easy on us with their marketing skills. Then what should we do to make sure our financial harmony remains intact for a long time to come, and our focus remains towards the two things that brought us all the happiness – profession and family?

It is the answer to this question, that we shall explore in this article today. There are always three steps to resolve a situation: 

 

1. 1. First, understand what caused it.

 

1. 1. Second, make a clear picture of how we want it to be.

 

1. 1. Third, chalk out a plan detailing how it’ll be done.

 

Attending to the first step you only find two culprits:

• Income &
• Expenses

Given the rigidity on the income part, it is always easier to manage expenses than increase income. There are many possibilities on how does one gets his/her expenses out of proportions:

• Unplanned purchases/expenses
• Marriage
• Medical Emergency
• Other unforeseen financial requirement

A closer look will reveal the nature of these outlays. ‘Except unplanned expenses or purchases for that matter, all the other outlays are particularly non-recurring and of rare nature.’ Also, not only the unplanned regular expenses are frequent but form a major part of our entire life story. Getting hold of this one head, while you keep an strategic eye on the others, should solve a major chunk of your personal finance issues.

So, how do you really get hold of your personal finances? Well, I believe you already know, ‘budgeting, planning, being disciplined and blah blah…’ Yeah, you have heard all of that alright. You must be thinking right now, ‘you think I have not tried already, but when it comes to the decision of spending the need to buy is more urgent than any other thought. Its just spontaneous.’

You are absolutely correct, much of our purchasing decision is spontaneous. We certainly do not lack is the power of decision making, but the right motivation to be disciplined or the right motivation to postpone a expenditure. Budgeting is one of the tools you may use, but not the only one. Discussed below are three easy steps you can take to not just get hold of your personal money matters, but even make your financial lives more enjoyable and do away with the drought seasons on your lifestyle spend.

KNOW YOUR EXPENSES
The first step is something straight out of some holly wood action movie, or a crime thriller, where the villain stays at large till the end of the movie. It’s called ‘Thinking Ahead’, which is what your favourite hero does to nag the villain ultimately. When it comes to your financial matters, expenses are the real villain biting into your purse every other day. Therefore, first mission objective is to get hold of them before they get hold of us.

 For ease of clarity we shall do it in three parts:

Part 1 of Beating Your Expenses ‘Thinking Ahead’
We all have certain expenses common among everyone, they are the basic living expenses, even if you have never noted them down somewhere, if you just sit down and put your head to it, they are easy to spot. Most come in the form of:

• Weekly grocery purchases,
• Kitchen expenses,
• Transporation, fuel expenses
• Last week’s movie tickets
• That dinner at your favourite restaurant last week etc.

Well the list can strech, and pretty soon you will be exclaiming in disbilief at some of the ridiculous heads you probably never thought of spending. But pretty soon you have the list of, if not all at least 90% of them in your hand, and whats more, you can put a number in the amount field as well.

Still, kindly check your excitement level. Well, yes your finances are coming back in place but hold on, we just took that most important first baby step into it. This is just the beginning, for now, we have just put down the regular weekly spends, and trust me the hard part is almost over.

Available Deductions
First of all let us look at the available limits of deductions that can be claimed from gross total income for the current assessment year. With the increase of deductions limits for Assessment Year 2015-16 following deductions are applicable for individual taxpayers:

Deductions from Gross Total Income:
Following deductions can be claimed against the Gross taxable income for the Assessment Year 2019-20:

Part 2 of Beating Your Expenses ‘Thinking Ahead’
Really, previous part is the scariest of them all, and this part however should be easy, because there are always documentary evidence of it. This part accounts for your monthly expenses, those big outlays, which are almost fixed; like:

• Electricity & water bills
• Telephone / Mobile bills
• Television / DTH bills
• House Rent
• Any Loan EMI payment
• Parlour & medical bills
• School fees etc.

These expenses, even if small are mostly documented, therefore easier to provide a number to and track, and not to forget predict. You may not want to miss on many of them – you don’t want your water & electricity bills piling up, you don’t want your mobile operator putting late payment charges on you, you don’t even want to miss on those loan EMIs. That means, these expenses must be treated as important, unavoidable and fixed expenses. They can certainly be reduced by efficient and careful use of resources but still they will be there and to an extent they are necessary.

Part 3 of Beating your Expenses ‘Thinking Ahead’
Yes, you guessed it right, the annual expenses. These are most neglected until the deadline is close and situation becomes like do or die. Some of these are even statutory expenses and many times we simply tried to find a quick solution to it, only to realise later how bad that decision was. Let’s have a look at these kind of expenses in the first place:

• Annual Savings for Tax exemptions:
  • Insurance Premiums
  • Tax saving investments etc.
• The annual vacation expense
• Birthday party / Anniversary expenses
• Subscription fees to your favorite club etc.

Problem that these expenses can create is definitely huge, because these expenses can mean a huge outlay on your income, at the end of the financial year, in the middle of the year or whenever they occur. You may ask, how come a tax saving investment an expense? Well, because you cannot redeem it for a few years to keep your exemption intact, and much of it is done as a necessity.

Because of larger budget size of these expenses it is always recommended that you plan in advance for them, and not just about the party but also about the money that will run the party.

Most of the time it is up to us to put a figure to it in this case, except for the tax saving investment thing. But all others, like vacation, parties and subscriptions are defined by us and so the amount of spend is in our hands.

Once, you have completed the three parts of ‘Thinking ahead’ of your expenses, you have pretty much clear idea how your next year will be financially. Why a year? Because, that’s the time figure your income is assessed for, that’s the time figure you assess your income growth and more than that didn’t we make a new year resolution for a year?

BUDGETING
Great, so whats next now that we have overtaken our expenses on the time track? Now, we put the bumps in their path. Here’s how…

Many of you may argue, that what we just did was not budgeting? No, sir/ma’am, with due respect it was not, at least not yet. Why not? Let us see what difference budgeting makes.

We have noted almost all our expenses in the previous step, but they simply tell us one side of the story. So what’s the other side?

The income part. Expenses alone don’t show what lack of discipline did to your financial situation, actually matching them with income does, and that’s what budgeting is all about. So at the beginning of the budgeting exercise we just put all the income heads together and estimate the previous year’s total inflow in our bank accounts.

A good budget sheet would look something like this:

So in a way, budget is not only a prediction of all hte expenses over time, but also a prediction of income that will provide for those expenses and also savings. You may ask, how are we supposed to include savings when we are not even able to provide for expenses? Well, that’s where the real utility of budget kicks in.

Once you have included the following six parts in the budget, even if some of them do not have any amount in them:

1. Bank Balances
2. Cash in hand
3. Income at current level
4. Savings (even if zero)
5. Anticipated and fixed Expenses
6. Leftover

The next step is to provide some targets to your savings, start small, but start. In any case if your income is taxable according to the current slabs you must incur some expenses to ward of as much tax as possible. You will have to manage them from somewhere.

Then the next step would be to manage the expenses, remember that while in some months you came over bored with excess expenses your quick fix allowed you to provide for a large part of it in the next. But the problem with quick fix is like starving for a day and once the day is over, you go for the unhealthiest but tasty cuisine which ultimately makes you fatter than before.

Managing Expenses

Give your list of expenses three simple ratings:

1. For most important, unavoidable, necessary expenses, for example:
   • House Rent
   • EMIs
   • Electricity
   • Water etc.
2. For important but manageable expenses, for example:
   • Furniture purchase
   • Clothing
   • Fuel / Vehicle
   • Vacation etc.
3. For completely manageable expenses, for example:
   • Entertainment
   • Eating out
   • Birthday parties
   • Gifts etc.

That will allow you to focus on the expenses which are manageable and leave those fixed in nature alone, at least for now. Then you start to put the limits on each of the manageable ones, you are actually setting up targets for yourself.

 A piece of advice though, don’t leave your spouse out of this, it’ll be fun activity that you can do along with your spouse, and have their say in the budget, it woudn’t be a surprise if you are amazed at some of their ideas.

It is likely that at the end of the day you will be able to add more amount to your savings than you imagined before. Just one caution though, do not squeeze the completely manageable expenses into oblivion, they are important recreational activities and a complete lack of them will be stressful causing a sudden surge sometime later.

So you managed to add up some savings in your budget, and now you are ready to implement, before you do, here’s a quick recap:

1. List down all expenses (For the Week, Month and then Whole Year)
2. Give an amount to all the heads (For a year)
3. Take Note of your current bank balances
4. Make a conservative estimate of income for the next one year
5. Give ratings to your various expense heads
6. Adjust those rated ‘C’ first and add the amount into ‘Savings’

Now the last step will be to implement and that should be simple. All you have to do is:

1. Divide your annual budget calculation into a month’s expenses (divide by 12)
2. Setup weekly targets for week related expenses (simply divide the monthly allocation by 4)
3. Review your weekly performance at the end of the week (Make adjustments for next week)
4. After the whole month you may sit down and review your monthly budget performance and again make necessary adjustments
5. Same goes for a whole year
6. Also recommended is that you get a ‘Family Floater Health Plan’ to provide medical cover to your family.

Remember that, because we only accounted for 90% of the expenses 10% will always be out there to disrupt the budget progress, but you must not worry as the flexibility of budget allows you to enjoy all those events without giving up your targets.
Similar to the expenses we made a conservative estimate of income as well, therefore any additional income by way of cash gifts, capital gains or bonuses must be used as follows:

1. Divide it in two parts if the amount is large
2. Save the first part as bonus savings
3. Send the other one to your savings account to fullfil some of your pending wishes

That way, you will not regret not enjoying your money, neither you will regret enjoying it. With this, we conclude our annual money management. Shall we call it over? Perhaps not. In the next to put your long life and money matters throughout in order, we move one to the next step.

INVOLVE PROFESSIONALS

 Our life goals do not end in one year, we will have some major goals ahead of us, once in a few years, we will need to upgrade our vehicle, get a major repair done to the house, or may just encounter a sudden electronic appliance need, or what about that international vacation we planned about.

Making an annual budget was one thing, and it resolved one of the major hurdles of initiating/increasing your savings. But only saved money doesnot automatically grows and comes handy for major life goals. The greatest threat savings have comes from their use over time. A small omission in budget may cause a large expense to be overlooked and hit us when we have no option but to dig into our savings, that is when most of your future aspiration will take a financial hit.

To avoid such situations and sail through the ocean of life, which at times can be turbulent, you require strategic planning spanning for your life. Which should account for:

• Your current lifestyle along with
• Your long term aspirations &
• Prepare your money (Savings) to meet your future needs

This is where professionals like wealth managers and financial planners come into the picture. They will assist you in achieving answers to the following essential questions:

1. Whether you are saving enough for your family’s future? &
2. Whether your savings are working towards your family’s future?

The professional Wealth Manager/Financial Planner, will assist you with the following:

• Improve savings over time
• Prepare well in advance for important life goals, i.e.:
  • Kids’ education
  • Kids’ marriage
  • First House Purchase
  • Own retirement etc.
• Allocate your savings according to your goals and risk tolerance. So you are always at peace that your money will be available whenever you need it to be.
• Prepare you for emergencies, like:
  • Job Loss
  • Medical emergency etc.
• Allocate your additional income, bonuses etc.
• Review your plan time to time to check on progress and make adjustments
• And finally, to plan taxes and estate properly so that they pass in to the right hands after you.

A comprehensive and professional wealth plan provides you with a larger picture of your future vis a vis money, and this knowledge itself is really important. It prepares you to make necessary adjustments and provides you the necessary motivation we talked about in the beginning for such adjustments which are ultimately going to pay off over time.

The key to a better future, as most successful self-help professionals put it, is in “starting now” so that at least two – three years down the line your are there, where you wish you have been right now.

Mutual Funds for wealth creation: 
If you’d ask about that one thing that all investors want from their investment in return, is Returns, the more the merrier. And Equity MF is the undisputed king in terms of returns over long periods of time. Equity Mutual Funds offer an immense potential to generate wealth on back of the underlying asset class: Equity. The last 5 year, 10 year and 15 year returns of the average of all Diversified Equity mutual fund schemes are 19.65%, 10.88% and 21.56% (Source: NJ Research).

Mutual Funds for Saving Tax:
Every year, we look to invest for saving tax, and quite often we fall for products which do save tax, but do not generate enough returns, and we generally get stuck with the investment for years because of the long lock in periods. Mutual Funds offer an excellent opportunity to investors for saving tax, in addition to the stupendous wealth generation potential it offers, as narrated above. An investment of upto Rs 1.5 Lacs in a year in ELSS MFs are exempt from tax u/s 80C of the income tax Act. So an investor can save tax of upto Rs. 46,350* a year by investing in ELSS schemes, *(For a resident individual falling under the 30% tax bracket, for FY 2018-19). Talking about returns, the last 3 year, 5 year and 15 year returns generated by the average of ELSS schemes are 10.08%, 18.93% and 21.62% respectively (Source NJ Research). And lastly lock-in, ELSS has the least lock-in period across the tax saver category, of just 3 years.

Mutual Funds For Emergencies: 
People save money for the uncertain future, you don’t know what’s going to happen next, there can be punctuations in income, expenses uncalled for, medical emergencies, and the like. People usually maintain some balance in their saving bank accounts for emergencies, saving account is the preferred choice because of the liquid nature of the same. Mutual Funds offer an alternate to investors to cater to emergencies, in the form of Liquid Funds, wherein investors get liquidity as well as slightly better returns than saving accounts.

Mutual Funds for Regular Income: 
People generally invest in fixed deposits with interest payout option to get a regular monthly income, or buy a property with the view to get monthly rental income. However, in the former case, the interest rates are too less and at times investors end up eroding the principal value of their investment; in the latter case, 1. The rental yield in India is in the range of a meager 2-3%, and 2. Property prices have also remained flat lately. Mutual Funds offer a better alternate to investors seeking regular income, in the form of Balanced Funds with SWP option. Here, the fund comprises both debt and equity, wherein equity works to boosting the returns and debt works to protecting the downside. So, assuming an investor withdraws at the rate of 8% a year, and the returns are 12%, so the extra 4% gets added to the principal, after providing for the monthly income.

Mutual Funds For One-time investors: 
An investor can invest a lump sum amount in a Mutual Fund scheme, like people invest in FD’s. You can invest in a single MF scheme or in a mix of schemes or in a diversified scheme or in a hybrid scheme, depending upon your investing requirements.

Mutual Funds For Regular investors: 
Mutual Funds offer an incredible opportunity to investors to invest for the big goals of their life by taking small steps. Through the SIP mode, an investor can start investing with an amount of as small as Rs 500 a month. SIP has made investing easier, the investor has to pay a small amount each month, so gradually over long periods he actually invests a substantial sum of money and because SIP makes volatility work to the benefit of the investor, it has helped investors create massive wealth over time.

Mutual Funds for Life’s Goals: 
Whether it’s about your Retirement goal which is lined up 20 years ahead, or it’s about your daughter’s higher education after 5 years, or about buying a car after a year, or may be parking your extra cash for a day, Mutual Fund caters to it all. Because of the varied options of investing available with respect to the underlying asset class, Mutual Funds offer an opportunity to actualize the life goals of all investors with different risk appetites and investment horizons.

For Estate Planning: 
Lastly, Mutual Fund is not just an investment avenue for your life, it also aids you in passing on your wealth to your next generation. Unlike in the case of your other assets like property or gold, where estate transfer involves a lot of hassles, Mutual Funds offer a very simple process for the same. The joint holders of the investment or the nominees have to simply submit the required documents to the AMC and get the units transmitted in their names.

To conclude, people generally associate Mutual Funds with stocks, but the reality is you do not have to look beyond a Mutual Fund for any of your investing needs. Mutual Funds offer an alternate to almost all investment products and that too with superior returns in most cases.

We save and invest throughout our life for our future and our goals. We invest for buying our dream house, for our kids education, marriage, for a peaceful retirement, and the like. And we also understand the uncertainty quotient attached to our lives. For this reason, we try to secure our dependents’ future with insurance, so that in event of our untimely death their goals are not compromised for lack of money. On the same lines, it is also essential to ensure that our dependents get the full and timely benefit of our investments.

Mutual Funds have gained popularity over time because of the innumerable benefits attached, including easy and hassle free operations, be it investing, redeeming or switching investments. Mutual funds provide the option of having accounts in joint names and to provide for nominees, to ensure a smooth Transmission process, i.e. the process of passing on the unitholders’ investments to their dependents. It is a very simple process when there is a nominee, or when there are joint holders.

Whether your dependents wish to hold on to, continue investing or redeem the investments, after you, the first step would be transmission of the units in their names. So, we have the transmission procedure detailed below:

The transmission process is dependent upon the holding pattern and the registration status of nominees, if any, so there will be a different process to be followed under different scenarios.

Scenario 1: When the investment is held jointly

When a Mutual Fund investment is jointly held by 2 or 3 holders, then in the event of death of the primary holder, the other holder/s will have to transmit the investment in their name, and it becomes mandatory for them to appoint a nominee. The transmission process is simple, the other holder/s have to submit a letter (in a prescribed format) to the AMC along with a Death Certificate of the deceased unitholder in original or a notarized copy attested by a gazetted officer will also do. In case the bank and KYC details of the other holders were not submitted earlier, then the related documents will also be required.

Scenario 2: When the investment is held singly, with a Nominee/s registered

When there was a single unitholder and the investment is to be transmitted in a nominee’s name, then to create a new account in his/her name, along with the above, the following are required:

> Bank account details of the nominee, along with a Cancelled Cheque

> PAN Number and KYC details of the nominee

Where the Nominee is a minor, then the following additional documents will be required:

> Proof of date of birth of the minor nominee

> A letter from the guardian, stating the minor’s custody and his/her relationship with the guardian, along with a court order, if applicable.

Scenario 3: When the investment is held singly, and there is no Nominee:

The transmission process becomes a ‘task’ when there is neither a joint holder nor a nominee. In this case the claimant’s will have to submit the details and documents as described in Scenario 1 and 2 above, along with the following additional documents:

> An indemnity bond from the legal heir/s on a stamp paper, franked for value as applicable in the respective state of execution of the Bond.

> Individual affidavits from the legal heir/s on a stamp paper, franked for value as applicable in the respective state of execution of the affidavit.

To note, if the transmission amount is less than the threshold limit (set by the AMC), then the claimant will be required to submit a document proving his/her relationship with the deceased unitholder. The process gets further complicated if the transmission amount is greater than the threshold limit, the claimant will have to submit a notarized copy of the probated will or a legal heir certificate, in this case.

To conclude,

1. Looking at the tedious process in Scenario 3, it is advisable to always keep your mutual fund investment either in joint name or register a nominee.

2. Many times what happens is, nominees are unaware of investments made or of any nomination thereof. There are various anecdotes which narrates of instances when after a long time after the death of the investor, his old wife or kids came across the MF investments of the dead husband or father, as the case may be, and those untouched investments made them rich overnight. But your family might not be lucky enough, and they may never come across your investment, or at least when they need it the most. It is extremely important that your dependents know about the investments so that they can get your investments’ value in time, if need arises, so you must always Keep them in the Loop.

In today’s times, people want to get the best of everything for their child, the best education, food, clothing and the best quality of life. They say kids of the Z generation are born with a silver spoon, since most often parents bestow them with all the luxuries of life, without having to worry about the means, kids are totally left out of the money talk. Kids of this generation may not have experienced the financial difficulties as the earlier generations did. Until adolescence, they believe that money is unlimited, since they have been getting whatever they have ever wanted, decorated on a plate. And then a bomb is dropped when they move out of the house and step into the savage Adult world. That’s the time when you’d expect your kid to save and start investing for his/her future, but chances are he/she would be entrapped in the vicious circle of Monetary Negligence accompanied with ruthless spending, zero saving and high credit card debt. It would take some precious years of their age before realizing Financial Cognizance.

To avoid this situation, it becomes crucial for parents to inculcate financial prudence among kids from a young age. If they have a strong base built, they acknowledge money’s worth, saving & investing will run in their blood. In this passage, we’ll share with you ideas on how you can go about constructing this base.

Understanding the Role of Money: Kids should be able to connect the dots, that:

1. Things come for a price, the price is Money And

2. That the supply of money is limited, and that is the reason why out of the ten toys they demand, they get only two.

There are small things that you can do in your everyday lives, for making them conscious of money’s worth.

For preschoolers, all that matters is a balloon or a toy, which probably they’d buy, but may hardly ever play with. As a parent it’s important that you don’t give in to their demands too quickly and also not always. When fulfillment of wants isn’t easy, kids will learn to be patient and start valuing things.

When your kids accompany you to the ATM, they may be fascinated by how cash is dispensed, you must tell them it’s not magic and that when money comes out, concurrently your bank balance is reducing.

Send them for small purchases like buying stationary, a packet of milk, popcorn in the cinema hall, so that they can sense the exchange between money and the stuff bought. They’ll get to know the prices of various products and that some products are more valuable than others.

You can instill diligence in your kids by involving them in your routine affairs like checking restaurant bills, you can ask them to compare prices of the same product offered by different brands, while you go shopping for groceries.

Saving: They understand the connection between money and the goodies money can buy, but do they really understand the connection between money and bifurcation between the goodies and savings? Young kids must understand that you put in a lot of hard work and efforts to run the house. They should realize the value of thrift and savings, and should start taking their first steps of being financially savvy. Your role as a parent is to familiarize the kids with the need to save and guide them as to how to go the about the saving process.

Tell them Why to Save

Narrate to them instances that how your savings helped you achieve your goals, that your car, which your son loves to the core, came because you saved for it, or the recent vacation where your kids had a great time, happened because you saved for it throughout the year. Also narrate instances when your savings helped you in meeting emergencies, like when their favourite aunt got married, you bought all the beautiful clothes and gifts for the aunt from your savings. The idea is kids should realize that why should they save, before moving on to the saving activity.

Tell them How to Save

A small allowance for winning a competition, or helping out their mother in the kitchen, or for scoring well in exams, will not just motivate kids but will also help them understand the concept of working hard for money. Concurrently, they should also be explained that although they’ve earned the money, they shouldn’t be spending it all, a portion must be saved. You can always attach a goal as a motivation to save, like buying a gadget or having a grand birthday bash next year from the accumulated savings.

Budgeting: A crucial element of valuing money is learning to live within a budget. You must tell them that you prepare monthly budgets and manage all the expenses within that budget, which helps you in saving money for your goals, that you could save for the annual family vacation because you lived within your budget. A great idea to have your kids have the hang of budgeting is through a simple activity like letting them plan a birthday party within a budget, while you monitor the progress by checking the expenses and the budget left, poke them if they are spending too much on an item and remind them of the budget left.

So, the bottom line is, kids must start learning to value money right from the time when they start learning the “basics” like learning to value our culture, respecting elders, being hygienic, being kind, among others. It’s extremely important to expose them to money matters gradually from their early years. There are little things you can do, which can help them become money wise, to help them establish a connection between ends and means.

1. An Emotional Guide: In investing, emotions play the devil’s role. If left unchecked, they can easily ruin one’s entire financial life. Hence, there is so much talk of taking emotions out of financial decision making. A financial advisor does just that by playing the role of an emotional anchor in your financial journey. He will help you stick to your goals and financial plans, irrespective of whether markets are riding waves or are in dire straits. He/she will help in managing your emotions of greed, hope and fear in different market times. These are aspects most important when we consider a life-time of investments.

2. Helps you in Understanding Self: You often don’t know what you don’t know. A true financial advisor attempts to draw a full picture of you in financial terms. He aspires to see not only the present but also the future. Perhaps, he knows more about you than you know about yourself, if you have been honest with him. It is with the help of a financial advisor that you can dissect your financial life to minute details and plan for every small and big financial goal. He will be able to help you find and fill your weaknesses and build on your strengths as you progress in your life. He will even warn you of dangers and risks which you do not see. While undergoing a proper financial planning, the advisor will also help you spell out your financial goals and priorities them as per your needs and risk profile. The entire process and experience can unravel new things for you.

3. Ensures Continuity in your Plans: It is one thing to make a plan and another to stick to it. Paul Samuelson once said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” However, it is not easy as short term, immediate concerns often overshadow our long term commitments. A financial adviser is one who can help you maintain continuity in investing. More than anything else, it is the time in market rather than superior products or market timing that dictates returns in the long run. The financial advisor helps you to be patient and reap the full benefits of time and continuity in investments.

4. Source of Experience & Knowledge: A financial advisor often carries with him knowledge and wisdom that he has gained from being in the industry full time, for many years and his constant learning in the business. Financial services is an industry that requires regular studies and being updated of all new developments, be it regulations, market situations or product features. As individual investors, this may be too much & may come at the cost of your time, energy and money. Knowledge and wisdom is difficult to gather and should not be mistaken for information, which is readily available. Whenever you are lost or are facing any doubts or need any help in a financial decision, your financial advisor will be there for you.

5. Motivation to Excel: No one dives into a swimming pool eagerly for the first time, often it is either an instructor or a friend or a parent behind you who pushes you. Like any parent or teacher, a financial advisor has one hidden desire from each of his clients. He wants them to outgrow themselves and become bigger and better investors, in all aspects. Driven by this desire, a financial advisor would push you to do things you may not be fully prepared with. Whether it is controlling spending, forcing you to avoid unverified investments out of greed, making you save for your goals or forcing you to invest more, behind every decision is the desire for your long term well-being. Perhaps, most of the investors would not be even half of their portfolio worth today, had it not been for their financial advisors. He sets newer, higher goals and aspirations for you which you never thought were possible. The constant nagging, motivation, control and aspirational attitude bridges the gap between what you already are and what you can possibly be.

6. Life long Partner: A financial advisor sees you not just a single transaction driven customer, but as a potential, life long partner in your financial journey. The long term relationship is something that he values and expects from every good investor. For him you are never an individual, but a family that can extend into different generations. Hence, it is important for you to have a trust worthy financial advisor. This is a journey where he will be there in all ups and downs in your personal life (and markets) and will help you avoid and face various challenges in life. As the ultimate aim is financial well-being, a financial advisor will seek not only grow but also protect your wealth, always keeping the bigger picture in mind. As a mutually beneficial relationship, the financial advisor sees his well-being only conditional upon your well-being, to its fullest extent.

7. The obvious reasons: Well, the obvious reasons for which you think a financial advisor is required, actually comes last in our list. Reasons like operational support, saving time, consolidation of entire investment portfolio, keeping regular track of investments, regular portfolio review, timely communication of portfolio and transaction information, resolving any queries or issues in investments, keeping abreast with regulatory requirements, etc., are the many additional reasons why a financial advisor is needed. He helps you do all this which in turn helps you save a lot of time, hassles, efforts and worries. With the advent of technology and digital processes, a financial advisor uses them as his tools as a master, keeping control and managing them smartly to bring greater convenience for clients.

Conclusion
A financial advisor is more than the sum of all investment decisions that he can help you make in your life-time. How about starting with a simple question – Can you add the value of all decisions that you have ‘not’ taken because of your advisor? Can you value the portfolio he suggested against a portfolio you would have created in his absence? How about valuing the time you have remained invested or the additional investments you made, courtesy your advisor? The fact is, it is easier to think about making isolated investment decisions but difficult to imagine and create the bigger picture and keeping it relevant for years and years. A financial advisor not only helps you in deciding, but also helps you in deciding what to decide. Simply being with you, assuring you and helping you as you may ‘need’ and a promise for a life-time of same, goes a very long way in you being confident in your investment journey today. This new year, it is time to put a word of heartfelt thanks out to your financial advisor too in response to his new year wishes for your well-being.

It’s that time of the year when most companies will be treating their employees with their annual bonus for their year long hard work. Some of you might have already got the big credit in your accounts, while others might be in the “guesswork” stage, trying to figure out the bonus amount and hoping your boss does not count the number of uninformed leaves you took, or the number of times you came in late.

So what are you going to do with this bonus?

Buy a Phone, throw a Party, buy Clothes, go for a Vacation, or are you going to do something prudent?

The worst you can do is squander away your bonus, the reward for a whole year of slogging is ruined. The company has paid to you, now it’s your turn to pay to yourself. So, what should you ideally do? How do you bonus put your bonus to good use?

So the following passage will guide you about managing your bonus effectively so that you maintain a balance between gratifying your desires as well as contributing to your future.

Spend Prudently: We at times end up blowing our hard earned bonus on stuff which we might not have otherwise purchased/needed. Buying an I phone X worth Rs 1 Lac, while you bought a new One Plus 5 six months back, just because you got your bonus, doesn’t make much sense. The bonus temporarily increases the size of our pocket, but you must remember that it is your hard earned money, buy something that you really need and afford. Spend your bonus wisely.

Reconsider Investing in Gold: Many people buy gold jewelery/coins from their bonus, as an investment for their future. But the fact is, buying a gold chain may not be a very good investment. Firstly, because the return stats of gold over the past few years aren’t very promising, and the future prospects are also not clear. High making charges further accelerate the cost of the jewelry. And lastly, you will most likely never sell it in times of need, because of the emotional value attached. Hence, you must be careful about how much gold/gold jewelery you want to buy. If you are looking to invest, look for better options having a greater return potential and are easy to liquidate.

Don’t let it be in your Saving Account: Bonus is a big thing, it is ideal that you give a good thought for deciding its outlay. Till the time you decide the outlay, you can park the money in a liquid fund or an arbitrage fund until you find peace with an investment option. The twin benefit of not lying in your saving account is: it won’t vanish with your routine expenses, plus you’ll get a better rate of return.

Consider Loan Repayment: Because you normally don’t have such huge cash at your disposal, it’s a good opportunity to lighten your shoulders by offloading your loans. Normally, when you pay your EMI’s, a significant portion of the installment goes towards interest repayment and the remaining towards principal. However, if you make an early repayment, it will be a part of Principal repayment, thus reducing your interest burden over the long term.

> Create/Add to an emergency fund: Your Emergency Fund needs to be reviewed and revised from time to time to incorporate your increased income and elevated lifestyle. So, your annual bonus also offers a good chance to upgrade your Emergency Fund.

> Invest for your goals: A great option that you can consider for your bonus disbursement is invest your bonus for your goals and make your bonus work for your future betterment. Fix a meeting with your Financial Advisor and review your financial plan and allocate your bonus to different investment products in accordance with your financial plan.

To conclude, your bonus is the reward bestowed upon you for your year long hard work. Use it in a way that you appreciate your decision later. You can explore any or a blend of the above or any other option that you may deem fit. Also, do not forget to celebrate the arrival of the bonus, go for a dinner with your family or friends, or plan for a weekend getaway, rejuvenate yourself, because another year of challenging your capabilities has made its way.

Schools will soon be closing for summer vacations, and we don’t want our kids to kill their time and strain their eyes watching TV, or pestering their grandparents all day. So, most parents would be contemplating to send their kids for dance, music or painting classes, or may be enroll them for summer camps, or for vedic maths or abacus classes to advance their number skills. We want them to do something concrete, to keep them occupied, while they pursue a hobby or build their extra curricular skills or social skills. However seldom we would touch upon their financial management skills.

Vacations is a good time to introduce your kids to money skills and in fact setting the path for growing of a financially savvy individual. We have listed down some activities that may be helpful in putting the vacations to some constructive use.

Teach the money cycle: The rudiments of financial literacy lies in the money cycle: 1. Inflow of money 2. Spending 3. Saving. This summer, the first thing you can do is explain the concept and elements of the money cycle to your kids. To secure your child’s interest, you can use various techniques for making learning more fun for the kids. You can engage them in a daily activity like cleaning their room, or watering the plants, or reading a book and attach an allowance on completion of the activity. You can also give them an allowance on special occasions like participating in a marathon, or helping mum in the kitchen if guests arrive, or for eating spinach in dinner, and the like. Also you must keep in mind, that you give them only as much allowance as you mutually agreed initially, stick to your policy, don’t fall for those cute faces, 5 Rs for cleaning the room, so be it 5 only. Next ask them to write their goals, like what are they planning to buy from the money they get, at the end of the holidays. Guide them in developing their savings plan so that they can have enough money to fulfill their goal. You must continuously monitor their finances, and poke them if they are overspending. These activities are thrilling, kids will be motivated to work hard for more allowances and saving from their allowance since it is taking them closer to the their military gun, or a pair of skates, or whatever the goal is.

Make them your grocery shopping partners: Whenever you go for grocery shopping, take them along. Involve them in shopping, familiarize them with the information printed on the package and that it should be checked before buying the product, like MRP, expiry date, etc., let them check the price of each product you pick and also of the alternate products that you skip. They’ll get an idea about the price of the products that are consumed in the house, the price difference between a Ferrero Rocher and a Dairy Milk chocolate, the effective cost of the product if you purchase combo packs, etc. At the end of the shopping, ask the kids to crosscheck the bill with the items purchased.

Keep them involved in the entire shopping process. This activity will give them practical exposure, it will teach them that things come for a price and will inculcate prudence from a young age.

Teach them entrepreneurial skills: Vacation is also an opportunity to let your kids taste business skills. The kids can set up a stall like a golgappa stall, or a sandwich stall, or a candle stall in any event that’s happening around, like your society or a fete or a mall, etc. Let them do the purchase of the raw material, processing of the product, setting the price of the product, do sales, etc. The level of responsibility should depend upon the age of the kid. At the end of the day, if they manage to make a profit, it shall be deposited into their piggy bank or their saving account. This exercise will help them experience the thrill of business process, it’ll be their first steps to learning business sense.

Money Games: There are a plethora of money games available for different age groups of kids in the market, on various subjects like stock exchange, piggy banks, business, saving, setting of goals and working towards them, etc. Kids have an appetite for games, a fun and engaging money game can be a good way to capture their interest and inculcate financial instinct among your young ones. You can research a bit and then buy few good money games for them in this vacation.

Gone are the days when kids were excluded from all financial discussions of the house, today parents make an effort to make their kids financially aware, so that when they enter into the mature world, they are not at point zero because the first thing they are going to face is money. So, this summer vacation, carve out some space for financial literacy from their activity schedule.