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Thursday, December 13, 2018

How to choose a SIP Fund

Are they are any best SIPs

Are there any best SIPs?


SIPs are a medium to invest in mutual funds. Hence, there's nothing like 'best SIPs'; you need to select best or winning mutual fund schemes to invest so that SIPs work best for your objective of wealth creation to achieve long-term financial goals.

So, selecting an appropriate mutual fund scheme for your SIPs is very crucial.







SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

How to PPF Account extension after maturity

A PPF account can be retained after maturity without making any further deposits. The balance will continue to earn interest till it is closed.

Public provident fund or PPF remains one of the most popular savings options for the long term despite a gradual decline in interest rates over the years. PPF accounts have a maturity period of 15 years and they can be extended. If there is no fund requirement, financial planners say, PPF account holders should extend the account beyond 15 years. In terms of income tax implications, PPF accounts enjoy the benefit of EEE (exempt-exempt-exempt) status. Under Section 80C, contribution up to Rs 1.5 lakh in a financial year qualifies for income tax deduction. The interest earned and maturity proceeds are also tax free.

What are your options when a PPF account matures?

1) A PPF account can be closed after the expiry of 15 financial years from the end of the year in which the account was opened.

2) The subscriber can retain his/her PPF account after maturity without making any further deposits for any period without limit.

3) The balance in the account will continue to earn interest till it is closed.

4) The subscriber can make one withdrawal of any amount in each financial year.

5) If the subscriber wants to make further contributions after the PPF account matures, it can be extended in blocks of five years.

6) There is no limit on the number of times you can extend the PPF account.

7) But if the PPF account holder wants to continue with the contribution-mode after maturity, he/she has to submit Form H within one year from the date of maturity of the account.

8) If the subscriber fails to submit Form H but continues to make deposits in the account, the fresh deposits into PPF account will not earn any interest.

9) Also, in this case, the fresh deposits in the PPF account will not be eligible for deduction under Section 80C of the Income Tax Act.

10) In case the person has opted to extend his account by a block of five years, during each block period he/she can make one withdrawal not exceeding 60% of the balance at the commencement of each block. This amount can be withdrawn either in one installment (one year) or in more than one installment in different years, not exceeding one withdrawal in a year.







SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Wednesday, December 12, 2018

SIPs Can mke you Rich

Over the last three to five years, an additional development in the actual mode of paying for the SIP investment has improved matters further. Earlier, SIPs meant writing a pile of cheques and giving them to the fund. Obviously, there was a limit to this, generally anything from 12 to 36 months. As a result, investors felt that an SIP was a fixed tenure plan. When the cheques would run out, investors would take their time to go through the whole effort again. At that point, if the markets were looking depressed, they would not do it at all. 

Now, investors generally give an ECS mandate for the monthly SIP investment amount to be directly transferred from their bank accounts. Generally, this is a perpetual mandate. Stopping the SIP requires an instruction to be registered. Earlier, stopping was automatic but continuing involved a fresh pile of cheques to be written. In my experience with investors, I have felt that this change of defaults has had a huge impact. 

The kind of returns that one can get with SIPs are truly mind-boggling. Here are a few very long-term examples. I took up four funds that have been around for decades and calculated what would have happened if I had done a modest SIP for the last 20 years 

It turns out that just a small investment of Rs 5,000 a month over two decades left me with sums of Rs 1.29 crore, Rs 1.85 crore, Rs 1.21 crore, and Rs 2.05 crore for the four funds. The amount invested in each case was just Rs 12 lakh (Rs 5,000 a month for 20 years). An investment like this can change the life of a middle class person. However, there's no special complexity in doing this. Just something straightforward, done over a long period. 



SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Adding Spouse as Co-owner when Buying a House

It makes sense to add spouse as co-owner as it helps in enhanced loan eligibility and provides tax benefits to both co-borrowers on interest and principal repayment. Also, succession of a jointly owned property is smoother compared to the lengthy process involved in case of single ownership.


Here are four benefits of owning a house jointly.

Lowers stamp duty

One of the significant additional expenses that a buyer has to bear while buying a house is stamp duty and registration fee for registration of property papers in the buyer's name.

However, "you may prefer to have your wife's name as the first owner as it can help you save a lot of money towards paying the stamp duty

In many states, stamp duty fees for registration of property is higher for male buyers and lower for women. For instance, in New Delhi, a woman has to pay 4% stamp duty compared with 6% for a man; if the property is bought jointly in the name of a man and a woman, buyers have to pay a stamp duty of 5%.

Similarly, in Haryana, a man is required to pay 8% stamp duty in urban areas and 6% in rural areas, while a woman has to pay 6% in urban areas and 4% in rural areas. 

Increases loan eligibility

Most property purchases are financed through home loans. When giving out a loan, lending institutions first determine the eligibility, which primarily depends on the income of the borrower. Typically, loan eligibility is around five times the annual salary of the borrower. However, "If the borrower draws insufficient income, has a low credit score or a low repayment record, a co-borrower's involvement is a blessing for the loan applicant and the lender is assured of timely repayment. Financial lenders require all co-owners of a property to be co-applicants of the home loan. However, all co-applicants may not necessarily be co-owners


In case of joint applicants, incomes of all the borrowers are taken into consideration to determine the loan eligibility and can enhance the loan amount. For instance, if your yearly income is about ₹10 lakh, you may get a loan of up to ₹50 lakh. If your spouse also earns ₹10 lakh a year, both of you can jointly borrow up to ₹1 crore. Besides, "having women as a co-applicant could also get you concessional interest rate at several financial institutions. It could either be your mother, sister, wife or daughter, but they need to be the first home buyers

Gives tax benefits to both

Repayment of home loan can give tax benefits to both joint owners of a house.

Payment of stamp duty and registration fee qualifies for deduction up to ₹1.5 lakh under Section 80C of the Income Tax Act, 1961. Principal repayment in a year can be claimed up to the overall limit of ₹1.5 lakh allowed under Section 80C of the Act. The interest paid on the home loan is allowed for deduction under Section 24(b) of the Act up to ₹2 lakh a year, in case the home loan is acquired for a self-occupied house. 

Joint borrowers who are also joint owners of the property can each claim deduction separately up to the above mentioned limits, as per their ownership share. However, jointly they cannot claim more than the actual amount of home loan repaid.

It is always beneficial when both partners contribute an equal proportion while buying a property. This will help them in getting equal taxation and capital gains benefits

There are other tax benefits as well. In case you plan to rent out the property, rental income can be shared by both the owners and may attract tax at a lower rate. For instance, if both the owners earn ₹8 lakh per annum and the property they jointly own with equal shares is rented out at ₹4 lakh per annum, ₹2 lakh each will be added to their incomes. In other words, their total individual income would be ₹10 lakh each, which comes below the slab of 30%. In the same example, if the property was owned by only one of them, the total income of that individual would have become ₹12 lakh, pushing the person in the 30% tax bracket.

Eases succession

In case the property is jointly owned by both the spouses—as a joint owner or a joint tenant with equal shares in the property—it may ease up succession issues. At the legal level, "doing so (joint ownership) also ensures that the spouse has no problems when it comes to claiming his or her rights of the property in the case of the demise of the other spouse

"In case one of the spouses dies, there will not be much stress and work involved to get the mutation done in the name of the surviving owner. It is easy and saves you charges involved for mutation

While there are many advantages of buying a home jointly with spouse, remember that problems could arise if your relationship sours.







SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Friday, December 7, 2018

Hierarchy of investment needs

Hierarchy of investment needs

We know how investing is different from just saving. If we put our saved money somewhere where it will grow, then that's investing. However, there are a number of possibilities available when we want to invest, and it isn't possible to make sensible choices without having a way to classify things.



However, let's not jump into classifying investments right away. Before we do that, we need to classify our need for making an investment. Investments can be made for a huge variety of needs. You could be saving for emergency medical funds which are usually required at a moment's notice. Or you could be saving for your retirement which is a few decades away, or anything in between.


We have created a useful framework for thinking about these investment needs. We divide investment needs into four levels. Each level is more fundamental than the ones that come after it. You should satisfy the need at each level before going on to the next one.


Those who know a bit about psychology may recognise this system as being based on the 'Hierarchy of Needs', a concept proposed by psychologist Abraham Maslow. Maslow's hierarchy dealt with basic human needs like food, shelter, etc. Basically, human beings deal with their higher needs after the simpler ones are satisfied.


So here's Value Research's Hierarchy of Investing Needs:

LEVEL 1: Basic contingency funds
This is the money that you may need to handle a personal emergency. It should be available instantly, partly as physical cash and partly as funds that can be immediately be withdrawn from a bank. Online banking and ATMs make it relatively simple to get this organised.


LEVEL 2: Term insurance
Calculate a realistic amount which allows your dependents to finance at least short and medium-term life goals if you were to drop dead or be struck with a debilitating injury or disease. You should have an adequate term insurance before you think of any savings.


LEVEL 3: Savings for foreseeable short-term goals
This is the money needed for expenses that you plan to make within the next two to three years. Almost all of this should be in minimal risk, deposit-type savings avenues.

 

LEVEL 4: Savings for long-term foreseeable goals
Same as level 3, except the planned expenses are more than three to five years away. This level should be invested in equity and equity backed investments like equity mutual funds.


One could think of many levels beyond this and really, the details matter much less than the concept. Depending on one's circum-stances, any of the levels may have to be modified. For example, you may have enough income-producing assets to make insurance relatively less important.


However, this doesn't decide how much to invest in each need. This system aims at preventing you from going to higher level unless the lower one is fulfilled. If you haven't put emergency cash in a savings account, then don't buy term insurance. If you don't have term insurance yet, then don't start putting away money for your daughter's college education, and so on.





SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Tuesday, December 4, 2018

e-diamonds

The lure of buying diamonds might be in their glitter, but you can even buy diamonds in the electronic form, through the Indian Commodities Exchange (ICEX) Ltd as derivative contracts. ICEX is a Sebi-registered commodities exchange that offers diamond futures contracts for 30 cent, 50 cent and 1 carat diamonds.

What is it? 

Like in other exchanges, you can buy and sell these contracts, which are priced at the wholesale market rate (ex-Surat) rather than at the retail price of polished diamonds. You can hold them in electronic mode or choose to take physical delivery. The contract units begin with 1 cent (100 cents make 1 carat). The shape, carat, colour, clarity, cut and other specifications will be mentioned as part of the contract. The standard contract has colour of 'H' level with VS2 clarity. 

There are limits on the maximum order that can be placed per individual. You can even start with a small amount and invest via systematic investment plan (SIP) to own a 1-carat diamond. SIP route lets you buy smaller quantities. 

What works… 

For many who don't have access to a trusted jeweller, this is an exchange-based platform to buy diamonds, which means the price discovery undergoes a process.

The diamonds are certified by International Institute of Diamond Grading and Research which is a De Beers Group company and hence, there is verification of the value of the diamond you take delivery for. You can also decide to sell the diamond back to the exchange.

...What doesn't 

Unlike the gold market, diamonds so far don't have a standardised market against which you can check pricing. Discounts and negotiated prices can exist elsewhere too. Diamonds are available in various configurations whereas this exchange has only a specified configuration for each of the three underlying contracts of 30 cents, 50 cents and 1 carat diamonds. For example, if you want to buy a contract for a 1-carat diamond with a clarity that is, say, at a level lower or higher than VS2, you may not be able to. If your interest is primarily in buying diamonds for jewellery, once you receive the stones from these contracts, you will still have to go to a jeweller to make what you want. If you are buying them as an investment, one must first understand whether the commodity is rare enough to warrant a stable price rise through the years.


This platform can work well for those who are already well versed with diamond specifications and pricing or maybe use it for hedging. One should also to do a background check on the exchange, which is new, although being a Sebi-registered entity is an advantage. While supply of the diamonds is limited, it is not a standardised and systematic market for which price trends can be extrapolated meaningfully; a lot depends on individual diamonds and their demand.




SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Monday, December 3, 2018

Know about CTC

HAVE never understood my payslip till date, says Avni Rustagi, a native of Punjab. Avni, 25, moved to Bangalore four years back in the hope of turning her dream into reality. In that order, she took up work as a designer with an Information Technology firm. Avni pays Rs 10,000 as rent for a spacious apartment, but ask her about how she manages her other expenses and she throws her hands up in the air. Numbers scare me, she admits. I don`t know a thing about finances. She says, For instance, I don`t even understand my pay structure or CTC as it is called, what I get in hand or why I get that much. Wealth realised that Avni's dilemma is a common problem with most working people. The transformation from CTC to take home leaves mostly everyone confused. Let`s decode and understand what happens when CTC becomes take home.

What is CTC?


CTC is nothing but the cost that the company incurs to employ you and keep you employed. It includes your pay and anything else that the company may incur to keep you in employment. Here is Avni`s CTC or Cost to Company.

Particulars-Rs (per annum)

Basic 480,000
Dearness Allowance 48,000
Entertainment Allowance 12,000
House Rent Allowa`nce 96,000
Conveyance Allowance 12,000
Overtime Allowance 12,000
Medical reimbursement 15,000
Gross salary 675,000
Company`s contribution to provident fund 57,600
Annual CTC 732,600
Monthly CTC 61050



Avni`s salary package is quite transparent. However, each company has its own method of calculating CTC. Companies may offer an attractive CTC pay structure but the take home may be substantially lower. Here are some components that are commonly used in the CTC:

1. IT companies often add training costs in the CTC. These costs are incurred by the company for training the employees. So, naturally these do not come in the form of take home.

2. Banks include interest subsidies in CTC. That is, if you are a bank employee, you are entitled to a discounted rate on loans.

3. Performance bonuses are also included in the CTC. These are variable components and you will be paid out a percentage of the bonus depending on your performance.

4. Companies may include the cost of group medical or life insurance. Some companies may add food subsidies, that is, you may be getting a subsidy on your lunch in the office canteen.
5. Some companies include gratuity in the CTC. Gratuity is a sort of bonus that is paid out when you resign or retire from your company. The catch: You are entitled to gratuity only after completing 5 years in the company. Some companies who include gratuity as part of CTC pay you the propornate amount as ex-gratia, in case you leave the company before completing five year as required.

SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

NCDs are a Good Investment Option

Non-convertible debentures(NCDs) and fixed deposits issued by companies can turn out to be good investment alternatives given that bank fixed deposits are not offering attractive rates. With several companies vying for investors' attention with these instruments, investors may be spoilt for choice.

Fixed income investors have endured muted returns for some time. The one-year fixed deposit at SBI currently fetches 6.65%, while the five-year deposit earns 6.75%. Even bond funds have fetched insipid returns, clocking around 6%. But recent NCD issues suggest good times. On May 22, Dewan Housing Finance (DHFL) launched its ₹12,000-crore NCD issue, offering a coupon rate of up to 9.1%. It received subscriptions worth ₹10,000 crore the very first day, getting fully subscribed soon after.

Last week, JM Financial Credit Solutions' ₹750 crore issue — offering up to 9.75% coupon rate — got oversubscribed the first day. The rates NCDs are offering are at least 200-250 bps higher than bank fixed deposits of equivalent tenure. For investors in the lower tax brackets, these returns are very attractive. At 9% coupon rate, the post-tax return for an investor in the 10%, 20% and 30% tax brackets works out to 8.1%, 7.2% and 6.3% respectively. Most debentures offer 0.25% higher returns for senior citizens. Investors can opt for monthly, annual or cumulative payout based on their needs.

While the rates are attractive, investors should choose the tenure with care. Most NCDs offer tenures ranging from one to 10 years. Longer tenures typically offer higher rates of interest. With interest rates headed upwards, it is likely that upcoming NCD issues will offer even higher rates than those available now. So locking in a large sum of money at current yields for a long tenure may not make sense. If you opt for a lower tenure instrument instead, it may fetch a lower coupon but you could invest in a higher yield NCD when the current instrument matures.

Alternately, you could opt not to jump in now and wait for higher yield NCDs to hit the market.

RBI is likely to hike interest rates in the near future. Investors should wait and watch before jumping in. Another option would be to deploy part of the surplus money at current rates. You can invest the remaining money as and when more attractive NCD offers come through.

There is no clarity on the interest rate situation. Rates may remain stagnant for some time. In this scenario, it would make sense to lock-in at current rates with part of investible surplus. Either way, it is a better idea to spread your money across two-three companies rather than risking the entire capital with a single issuer.

DON'T IGNORE CREDIT PROFILE

With NCDs, the high yield often comes with an added element of risk — of the company not being able to repay its obligations. Hence ascertain the credit rating assigned to the issue. Typically, companies rated lower than AA carry a high degree of credit risk, even though they offer a much higher coupon rate. Find out if the issuer has a healthy track record of repayment." Avoid opting for unsecured debentures that offer higher coupon; a secured NCD issue is a safer bet as it allows investors a claim on identified company assets in the event of non-payment of dues.  AAA and equivalent rated instruments are safer bets. If at all one has a risk appetite, a small portion of the portfolio may be deployed in lower rated instruments to boost yield. He feels investors should opt for credit risk funds instead. These allow one to capture higher yields, yet the exposure is spread across companies and the onus of evaluating the credit profile of businesses lies with the fund manager.

Even though NCDs are offered in demat mode and can be traded in the secondary market, liquidity is often poor. This may not allow investors to exit at the desired price and time, an issue not faced by credit risk funds.

ALTERNATIVES

Investors could also look beyond NCDs. Several company fixed deposits are on offer at attractive coupon rates. Kerala Transport Development Finance Corporation is offering 8.5% on its 36-month fixed deposits under both regular and cumulative payout option. Shriram Transport Finance – Shriram Unnati fixed deposit fetches 8.15% over a four-year tenure under yearly and cumulative payout option.

An investor can also park money in small finance banks. Fincare offers a coupon rate of 9% for two to three year tenures.

ESAF Small Finance Bank offers 8.75% on its 365-727 day fixed deposit while Ujjivan Small Finance Bank offers 8% for similar tenure. But like NCDs, check the credit profile of the issuer here too.





SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Friday, November 30, 2018

Invest Savings from FDs to Debt Funds


No matter what savers are hoping for, interest rates are going to stay low for years to come. It is time to study the investment alternatives.

A few hiccups along the way notwithstanding, it's more than likely that India is heading for lower interest rates for years to come, if not for decades. In fact, if one steps out of the ivory tower of economists and into the real life of savers, a huge amount of damage has already been done. A measly 2.5 - 3.5% on savings bank deposits and 5-7% on other deposits are going to be the normal from now on.

Most Indian savers, including retirees who need income, are heavily invested in bank fixed deposits. Their earnings have fallen by 25% or more in the past three years. So is there a solution? As it happens, there is. There are mutual fund products that fit the bill perfectly. They not only give you higher returns than the banking products, but are also liable for a lower tax outgo, making the effective return very attractive. In fact, their liquidity and convenience are also superior compared to fixed deposits, especially if you deal through the special apps that many funds have released for the purpose.

Sebi's recent reorganisation of fund categories has somewhat changed the lie of the land, so the types of mutual funds that work well as substitutes for bank accounts are liquid funds and ultra-short duration funds. These funds give predictable and stable returns with negligible volatility. The precise definitions that Sebi has now enforced have made them even more stable. Over the past year, liquid fund returns have been an average of 6.85%, while that of ultra-short duration funds have been around 6.47%.

While these compare well with the deposit products they can replace, the real kickers are convenience and tax factors. Liquid funds can be invested in and redeemed through a smartphone-based app for many fund companies. Through these apps, you can invest instantly by transferring money from your bank accounts. More to the point, you can redeem the investments and the money gets transferred to your savings account in five to 10 minutes. So you are able to earn interest that is 1.5 times that of a savings account and, yet, have a liquidity compromise of only a few minutes.

The benefits of funds over fixed deposits go much beyond a simple comparison of returns. The different taxation structure means there's a bigger difference in post tax returns. The tax difference arises from the fact that returns from fixed deposits are classified as interest income, while mutual fund returns are classified as capital gains. For interest income, you have to pay tax every year for what you have earned that year. If your total interest income from a bank (all accounts and deposits together) exceeds ₹10,000, then the bank also deducts TDS at 10%. In fact, if the bank does not know your PAN, it will deduct 20%. This means that a part of your return is not available for compounding because it is taken out and paid as tax every year.

There is a further advantage to the mutual fund option if you stay invested for more than three years. If you redeem after three years, then the gains are classified as long-term capital gains and are taxed after indexation. Essentially, you get taxed only on inflation-adjusted returns. Again, this does not happen with FDs. Applying all these factors, a three-ear investment in a short-term fund will leave you with almost twice the returns as an FD over the same period, and with excellent liquidity.

Earlier, this kind of fine-tuning could be expected only from a handful of knowledgeable and involved investors. However, with low interest rates, the payoff is huge, and a lot of us could benefit substantially from shifting away from deposit-type products and towards mutual funds.




SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Calculate RETIREMENT Amount

An ideal retirement corpus should take care of all your expenses after you stop working. But can you calculate the amount required? It involves taking into account life expectancy, interest rates, inflation and the time value of money...and can be a bit tricky. Here we explain how to use MS Excel to calculate the amount easily. But first, let's understand some basics.

The concept of time value of money states that the worth of a rupee received today is more than a rupee received at a later date because of its earning potential. The concept of time value has two elements: Compounding and discounting. Compounding helps to estimate future values whereas discounting helps to estimate present values. For calculating your retirement corpus, it is the present value that matters.

For example, an investment product promises ₹8 lakh in 10 years if you invest ₹4 lakh today. Given interest or term deposit rates of 8% per annum, will this investment product be profitable? You will have to find out the present value of ₹8 lakh at 8% discount rate to arrive at the right answer. Present value is calculated by dividing ₹8 lakh by (1+r) ^n, where 'r' is the discount rate (or interest rate) and 'n' is the tenure of investment. The present value of ₹8 lakh works out to be ₹3.7 lakh.

Since the present value of the amount that the product promises to pay (fund inflow) is less than the amount invested (fund outflow), the product is not profitable. In other words, the net present value of the investment product is negative. Net present value is the difference between the present value of cash inflows and present value of cash outflows.

If the same ₹4 lakh is invested in an FD for 10 years, offering 8% annual interest, the maturity proceeds work out to be ₹8.63 lakh (assuming no tax)—₹63,000 higher than the aforementioned investment product.

Calculating the present value of an amount gets complicated, if the investment generates a series of payments over a period of time. To calculate the current worth of such an investment, the present value of each payment in the entire series of payments needs to be derived. Technically, one needs to find out the present value of an annuity.

Estimating one's retirement corpus involves calculating the present value of an annuity. This is because, one expects to generate a stream of payments—monthly, quarterly or annually—from one's retirement corpus for a given number of years at a certain rate. Such stream of payments seek to take care of one's post-retirement expenses—based on one's current expenses and assumed inflation rate.

A 38-year-old with current annual expense of ₹6 lakh can calculate his annual expenditure requirements when she retires at the age of 60, based on an assumed annual inflation rate over 22 years (the period after which she will retire).

For instance, at 5% assumed inflation she will need ₹17.5 lakh—₹6 lakh x (1+5%)^22. The ideal retirement corpus must generate a stream of ₹17.5 lakh annually for 25 years after retirement, assuming life expectancy of 85 years. Such a corpus can be arrived at by adding the present value of each stream of ₹17.5 lakh discounted at an appropriate rate. The appropriate rate is generally the average long-term (10-year) yield on government securities. Additionally, the post-retirement inflation also needs to be taken into account.

Although the methodology appears complex, MS Excel's NPV function can help you do the calculations easily. NPV requires you to input the discount (or interest) rate and the series of expected inflows or estimated expenses.

At 7% discount rate and assuming no inflation, the present value of the annuity works out to be ₹2.04 crore. So, in our example, the working professional will have to accumulate ₹2.04 crore for his retirement. However, if we assume post-retirement inflation of 4.5% per annum, he will have to accumulate ₹3.12 crore. One can play with the numbers to see how changes in inflation, discount or interest rates changes the desired corpus.



SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

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Thursday, November 29, 2018

PPF vs ELSS Tax Saving Mutual Funds

The Public Provident Fund (PPF) and equity-linked saving schemes (ELSS) are popular investment options that both qualify for income tax deductions. A deduction reduces your overall tax liability. Contributions up to Rs 1.5 lakh a year qualify for tax deduction under Section 80C. Financial planners say that when it comes to investments in the PPF and ELSS mutual funds, investors should look at these investments not just from a tax-saving perspective but one that will help achieve their financial goals. ELSS mutual funds invest in equity shares of companies across sectors and market capitalization and have a three-year lock-in.

An ELSS mutual fund is quite the same as a diversified equity fund, other than tax deduction benefits and the three-year lock-in. ELSS investments come with a lock-in period of three years, which is lowest among Section 80C investments. Investors should understand ELSS mutual funds are equity market-linked products.

1) The PPF is a 15-year government-backed savings option offered through banks and post offices. Thereafter, it can extended further in batches of five years.

2) The interest rate on the PPF is revised every quarter and is benchmarked to yields on government securities. Currently, the PPF fetches an interest rate of 7.6%.

3) In the PPF, you can maximise your returns by investing early in the financial year so that your deposits can earn interest for the entire year.

4) The minimum amount that must be deposited in a PPF account in a financial year is Rs 500 and the maximum allowed is Rs 1.5 lakh.

5) From the seventh year, you can make partial withdrawals from your PPF account. Apart from income tax benefits, the PPF is suitable for conservative investors who are looking at long-term financial goals like a child's education or retirement, say financial planners. The interest and maturity proceeds are exempted from tax.

6) Premature closure of a PPF account is allowed only under specific conditions such as expenditure towards medical treatment. For this, a PPF account must have completed at least five financial years.

7) ELSS or tax-saving mutual schemes have a three-year lock-in period. You can partially or fully redeem your ELSS or tax saving mutual fund investments after three years.


8) Financial planners suggest investors to opt for systematic investment plans (SIPs) in tax saving mutual funds to help spread their spread their investments throughout the year.

9) The lock-in of three years also applies to SIPs. In other words, every SIP instalment in a ELSS fund is subject to a three-year lock-in.

10) Long term capital gains from equity mutual funds, including ELSS funds, above Rs 1 lakh will be taxed at 10%. ELSS funds come with both growth and dividend options. Mutual fund houses have to pay a dividend distribution tax or DDT of 10% on dividends declared under equity schemes, including ELSS funds. This effectively reduces the return from dividends from equity funds.





SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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Focused Funds

They are bit more Risky. The risk comes in two forms.


One is the likelihood of a fund manager losing money in a certain stock. I think if a fund manager goes wrong, the possibility of significant loss in a focused fund is far higher. Because in a focused fund a position in a stock can well be in the region of 5 to 10 percent.


The other is that focused funds can be far more volatile because you have fewer stocks. Nowadays, we are seeing a volatile market. So, the days on which the market goes down you see the concentrated fund falling much more than the market, compared to a more diversified fund.


I would say volatility is not as much of a risk on a 5 to 7 year basis. Because volatility, if you stay invested, is not a risk. But the risk of the fund manager going wrong is reasonably high.


So, yes, focus funds do come with high risk of volatility as well as the penalty for a fund manager going wrong with his selection is very high. And if he goes wrong with a couple of things, it could be a disaster.


But, I guess, that is where evaluation of a fund manager for a focused fund comes in handy. As a fund performs well and gets more money, it tends to become more diverse. So, I think 30 also gets you reasonable diversification.


So, check two things. You should look at the experience of the fund manager, of what he has set out to do and what are the quality filters. That apart, make sure even if it is a focused fund, it has at least 20 to 25 stocks, which is reasonable diversification for an investor. If you are comfortable with the volatility some of the focus funds look very promising.




SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Wednesday, November 28, 2018

Impact of rising interest rates on Equity Mutual Fund Investors

Rising interest rates in all eventuality can apply the brakes on a rising stock market. Of late, returns from market indices, especially mid- and small-cap indices have dwindled. "Interest rates act like gravity on valuations; higher the interest rates in a country, lower are the equity valuations. It is an inverse correlation

Reasons such as rise in oil prices, faltering health of public sector banks, increasing inflation among others may lead to the equity market finding new lows in the near future. The offset is that corporate earnings have been robust this quarter (top and bottom lines) for a substantial portion of the market. The question is what level will crude become an impediment to earnings, and we think we are already at levels that will result in a dampening of consumer willingness to spend.

That has repercussions for equities and continued rise in crude is likely to impact markets negatively



What to do: These macro economic factors should not deter a long term investor in equities and equity mutual funds. We would point out though, that the macro conditions can change quickly, so investors need to work within an asset allocation framework and stick to a plan that takes advantages of moves in the market, rather than letting these moves shake them out of a long term investment plan

 
After the recent reclassification of mutual funds, tracking the performance by investors may become easier. Going forward, investors will benefit by focusing on their fund's relative performance against its benchmark as well as the peer group during different timeframes




SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

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