Tuesday 15 February 2022

All you need to know about Asset Allocation

 




                Things you always wanted to know about asset allocation


Imagine that you have a pizza in front of you. But the pizza has six different types of toppings with different crusts. Would not that be awesome?

Now think that the pizza is your investment portfolio with different assets. This is called asset allocation, which describes where you have put your money. Although there is a high probability that you will like all the different pizza slices, in the case of investment, you need to be sure about where you have put your money and in what proportion. We don’t want you to invest blindly indifferent assets just because your colleague suggested you.

Asset allocation is essential as it helps to reduce the risks associated with an investment option through diversification. Different asset classes such as equities, debt, or commodities react differently to a particular event. While one asset may outperform during a specific time frame, other assets may underperform.

Here are some of the questions that you need to ask yourself to come to the right asset allocation.


When are going to need the money?

This question will determine which asset class you should put in money. If you are likely to need the money within 2 to 3 years, you can invest in conservative investment options such as debt mutual funds. It will be better to stay away from equities as the equity market can be volatile in the short run. But it has been historically seen that equity markets give attractive returns in the long term. Hence, if you won’t need this money for five years or more, investing a higher proportion of inequities would be the right approach.


What are your financial goals?

In addition to your timeline, your financial goals are also essential to determine your ideal asset allocation. For your short-term financial goals, debt mutual funds such as liquid funds, ultra-short-term, and short-term funds are good investment options. Invest in pure equity funds for your long-term financial goals.


How much risk can you take?

What will be your reaction if your investment value drops by 15% in a single day? If you are okay seeing your portfolio swing from one extreme to another, you can digest volatility; equities will be a better investment option. However, you can minimize the risks associated with equities by taking the mutual fund approach. High-risk investment options have the potential to give higher returns.

Now, that you have answered the questions, you begin thinking about allocating your money among the different asset classes. According to a thumb rule, your equity allocation should be 100minus your age. E.g., if you are 25, 75% of your portfolio should be inequities. The younger you are, the higher should be your equity proportion. As you grow older, you can add more debt instruments or cut your equity proportion. It is because as you get older, your risk-taking capacity also decreases.

It is also important to keep a specific proportion of your investment proportion (at least three months) as liquid cash for emergency purposes.

These were a few basics of asset allocation. But asset allocation does not stop with equity, debit, or cash. Sophisticated or seasoned investors can include alternative investment funds in their portfolios. It is becoming a popular asset class among HNI and UHNIs. It has the potential to deliver higher risk-adjusted returns. Alternative investment funds include start-ups, private companies, and hedge funds among others.

Among precious metals, gold is used as a hedging instrument. Gold performs better when the equity markets are in red. Geopolitical tensions and continuous rupee depreciation has made gold one of the must-haves in the investment portfolio of HNIs. However, ideally, gold should not constitute more than 5% of the investment portfolio.

Real estate is another asset that investors can look at to diversify their portfolios. Besides investing in real estate, investors can now invest in real estate investment trust(REIT). Through REITs, investors can invest in high-end commercial real estate.



Conclusion:

Coming up with the optimal asset allocation may not be an easy task as there are various factors at play. Prudent asset allocation can help you to achieve your financial goals, fetch maximum returns, minimize risks, and have sufficient liquidity. If you are not sure where to begin or need further clarity, your financial advisor will be able to help you out.


Sunday 16 January 2022

Tax on SIP

 

Know how SIP investments taxed
For the last few years, Systematic Investment Plans (SIPs) have become one of the popular ways to invest in the markets through mutual funds. However, before the reintroduction of Long-TermCapital Gains (LTCG) tax in the budget of 2018, long-term SIP returns from equity funds were completely tax-free, as equity funds were exempted from Long Term Capital Gains (LTCG).
Now, after the change in this law, several investors are unsure of how they should calculate their returns and tax liability. To ease out this problem, let’s see the tax angle of SIP investment. Basically, the tax on SIP currently depends upon whether the investment was made in a non-equity or an equity fund, as they have different tax rates.


How Does SIP Taxation Differ?
Unlike lump sum investments that are only one investment, SIP is made multiple times over a period. While you may consider a one-year-long SIP as one investment, when it comes to taxation, every installment is regarded as an additional investment.
This way, the holding period of every installment gets calculated.


Tax on SIP Investments on Equity Funds
For instance, suppose you started a monthly SIP in the equity scheme on 1st January 2020. On2nd January 2021, you decided to redeem the investment.
In such a scenario, only the capital gains on the purchased units from your first installment, the one made on 1st January 2020, will be considered as the Long TermCapital Gain (LTCG) as you have held the same for a period of more than one year. There is no tax on long-term capital gains below.1 lakh. Capital gains above Rs. 1 lakh are taxed at 10%.

For the rest of the installments, the holding period will be considered less than one year. Thus, the gains will be short-term. Short Term Capital Gains(STCG) of 15% will apply to these units.
Here, the ‘first in first out rule is followed. This means the units purchased first will get redeemed first.


Tax on SIP investments on Debt Funds
However, if you had invested through SIP in a debt or debt-oriented hybrid funds, LTCG will apply on units that were invested for over 36 months and the profit is taxed at a rate of 20% after indexation.
For investments below 36 months, the capital gains are added to income and taxed as per the income tax slab.


How are the Gains on SIP Investment Calculated?
Put simply, tax on the total investment of SIP is the total sum of tax payable on every installment. To calculate the same, an individual calculation of tax on each installment has to be done. Jotted down below is the entire step-by-step procedure.
First of all, the classification of equity and the non-equity fund is done
Second, the holding period is computed to discover whether the gains are long-term or short-term capital gains
Then, the cost of purchase is noted for every installment
In case the funds are equity, it has to be checked whether the grandfathering clause is going to be applicable (this is for investments that have been made before 31st January 2018).
However, if it is a debt fund, it has to be figured out whether LTCG will be applicable. If yes, adjustment for indexation will be made
Next, the calculation of applicable tax for every installment will have to be done
Short-term and long-term gains will be separated
Approximate tax rates will be applied to find the payable tax amount.


Conclusion:
Tax on SIP investments depends on the underlying securities and is taxed as per the current taxation rules on equity and non-equity investments. However, in the case of SIP, every installment is considered an additional investment.
Consult us to know more.
This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme related documents carefully.







Wednesday 29 December 2021

12 Features of ELSS Funds

                                             


Equity Linked Savings Scheme is a type of equity mutual funds that offers tax saving and wealth creation. Here are a few unique characteristics of ELSS that make it an ideal investment option.

1. What are Equity Linked Savings Scheme Funds? 

Equity Linked Savings Scheme Funds (ELSS) also known as tax saving funds is an equity mutual fund that invests predominantly in equity stocks. ELSS funds offer tax exemption on a maximum investment amount of up to Rs. 1.50 lakh from your annual taxable income under Section 80C of the Income Tax Act, 1961.


2. Where do ELSS funds invest? 

ELSS funds invest in equity instruments such as stocks of listed companies. These funds allocate its investments across large, medium and small-sized companies.


3. Get the power of equities

 Historically, equity investments have outperformed other asset classes in the long-term. Investment in equity funds have the potential to help you fulfil your long term financial goals.


4. Avail the dual advantage of wealth creation and save on tax 

With ELSS, you can avail the dual advantage of wealth creation and save on taxes. As ELSS funds invest in equities, it has the potential to earn higher returns in the long term. Moreover, your returns from ELSS are deductible from the total income under Section 80C of the Income Tax Act, 1961. Hence, you get tax benefits with attractive returns through your investment in ELSS.


5. No limit on investment

There is no maximum investment limit on ELSS. You can earn market-linked returns on the entire investment amount. However, tax benefits on the investment are available up to Rs. 1.5 lakhs.


6. Achieve your financial goals

 As ELSS funds invest in equities with no cap on investment, it can help you achieve your long term financial goals such buying a house, planning for higher education and preparing for retirement.


7. Invest through SIP or onetime lump sum investment

Lump sum and Systematic Investment Plan (SIP) are two popular ways to invest in ELSS funds. You can opt for a mix of both these investment options to gain the maximum advantage of investing in ELSS. In the SIP mode of investment, you need to invest a small amount of money over a period. Whereas, in case of lump sum investment, you invest in one go


8. Systematic Investment Plan (SIP)

Facility If you want to invest in ELSS through SIP, you don’t have to invest a large sum at one time or wait for the last moment. It is because you can plan your tax saving investment at the start of the financial year and invest in ELSS funds through SIP over the financial year. Although monthly SIP is a popular SIP frequency for salaried individuals, investors can opt for weekly, quarterly and half-yearly SIP frequencies as well.


9. Low minimum investment amount

 Investment in ELSS is affordable, as the minimum investment amount in ELSS fund through SIP is Rs.500. So, you do not worry about amassing a large corpus for investment. The low minimum amount makes it easy for different investors to invest in ELSS with no issue


10. Lowest lock-in period 

The tax saving funds have the lowest lock-in period of 3 years. You can redeem your investments after three years without paying any penalty or exit load or continue to stay invested after the end of lock-in period.


11. No mandatory exit period 

There is no mandatory exit period of ELSS. You need not redeem your investments after the lock-in period of 3 years is over. You can stay invested in ELSS beyond this lock-in period until you are ready to redeem your investments.


12. Tax on capital gains

 Long Term Capital Gains on equity funds applies on ELSS funds as it has a lock-in period of three years. The capital gains from ELSS funds below Rs.1 lakh in a financial year is tax-free. The long-term capital gains above Rs.1 lakh in a financial year is taxed at the rate of 10%.


Make a smart financial move by investing in ELSS.


This blog is purely for educational purpose and not to be treated as an personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.

Wednesday 15 December 2021

4 reasons why you need a Financial Advisor?





 

Before we understand the importance of financial advisor, answer this one simple question.



Did you take the help of a CA or a tax consultant to file your ITR returns this year? While it can be done for free by the income tax department, we still consult our tax consultant so that we don't go wrong anywhere.

However, when it comes to managing money, most people do not want to take any help from financial planners or advisors. There are many reasons for this attitude. Some think it is a waste of money, while others believe that they can handle their money.

Financial advisors can provide immense value to any individual’s portfolio.

Here’s why you need a financial advisor:


Assess your financial health:

An advisor examines an individual’s financial situation and health. He may pinpoint weak points that need strengthening. For example, the advisor may alert you about wasteful expenditures. Hemay identify investments that are not giving optimal returns and accordingly suggest the right way forward.


Teach you the basics of investing:

There are many resources on Google through which you can learn the basics of investing and personal finance. However, there is a high probability that you get lost in this maze. Some articles will suggest plan A, while others will tell you to follow plan B. This can increase the confusion. Andas a result, you may postpone starting your investment at a later date. When you have a financial advisor, he or she will make sure that you understand the basics of investing. The world of finance is vast. Hence, it is always better to know and understand the parts that are important to you.

Choosing the right products to invest and aligning your investments with your goals:

Even if you know the basics of investing, choosing the right products to invest may be uphill for many. It is because there are different types of products in a particular category. Also, the companies keep on coming up with products, some of which are too complicated to understand. financial advisor will suggest the right financial products for you and ignore the noise. Financial Advisors regularly meet the investment teams of the financial products to understand their investment rationale. For example, in the case of mutual funds, financial advisors use a lot of ratiosand parameters that help them to collate the list of top funds under the different categories. In Addition, they regularly compare the various financial products with their peers to suggest you the right product. Selecting the investment product will not mean much if it is not aligned with your financial goals.Not just your financial goals, the investment product should also go with your risk-taking capacity and time horizon. E.g., the best small-cap fund may not be the right choice if your investment horizon is just three years.


Help you to stay focused on your goals

While we may like to believe that personal finance and investing is all about numbers and selecting the product that has given the highest returns in the recent past, it is mostly about habits. It hasmore to do with behaviour and discipline than returns. In this journey, many investors tend to make avoidable mistakes.

Investors are likely to be carried away by discussions with their colleagues and friends. Theybecome tempted to follow the footsteps of their friends, even without knowing if that will be the right approach for them or not.

In this scenario, the financial advisor will handhold you and suggest you the right steps and make you stay on the course to reach your financial goals. Also, financial advisors carry out portfolio review at regular intervals to make sure that you are on the right track to achieve your financial goals.



These were the four main reasons why having a financial advisor is the best that you can do for your financial health.



Wednesday 8 December 2021

PLANNING FOR YOUR CHILD'S FUTURE








 Steps to Plan for your Child’s Future

Financial planning for the child’s future has become an indispensable part of financial planning. Earlier, public education took care of the educational needs. Times have changed and getting quality education requires a lot of money. Starting from kindergarten to postgraduate degree, getting the right education is a costly affair and it is going to increase in the future. So, instead of making ad-hoc financial investments, have a financial plan in place for your child’s future.

Financial planning for children is not just limited for people with kids but it will also help couples and singles who want to have children in the future.

Planning for children’s future as early as possible will help you to plan for their education and marriage easily and reap the benefits of the power of compounding.

To carry out financial planning for your kid’s future, it is important to note the different stages that require financial planning.

Before the kid enters formal education: Expenses related to a kid starts before the kid joins the formal education system. The medical expenses such as hospital bills and vaccination are some of the costs that parents have to incur.

School admissions: School admissions are no longer the same. Admission in a reputed international school requires a lot of money in the form of donations, school fees, tuition fees, books, co-curricular activities etc.

Higher education: The cost of quality higher education is rising at a faster pace. Education inflation is higher than overall inflation in the economy. Financial planning for college education is not limited to tuition fees. The cost of living in a different city including hostel fees, rent, food and transportation cost also needs to be considered.

Child Marriage: Your child’s marriage is another area that requires financial planning.

Now, that you are aware of the ‘whys’, let's shift our focus to the ‘hows’.

The first step is to find out the current cost of the course at the institution

Second, add the rate of inflation to the present cost. Rather than taking the inflation rate of the economy or education inflation, it will help to figure out the rate of inflation in the field of their choice. You can use a future value calculator available online to arrive at the future cost of your goal.

The overall education inflation is considered to be around 10-12%. E.g., if the current cost of a course is Rs. 15 lakhs, the course may cost approximately Rs.1 crore after 20 years with 10% rate of inflation.

The third step is to consider the time horizon i.e. knowing when you will need the money. For e.g., if you recently became a parent, your kid’s school admission may be a short term goal and their marriage plan is most likely to be a long-term goal.

The fourth step is to invest according to the time horizon of these goals. Different saving and investing options can help to fulfil your goals. Mutual funds are one such financial instrument can help you to plan for your children’s future goals.

For short-term goals with a time horizon of one year to three years, parents can invest in short term debt mutual funds. These funds invest in debt instruments that aim to protect your capital and give higher returns than traditional instruments such as fixed deposits. Hybrid funds can help to plan for your medium-term goals with a time horizon of around five years. Equity funds such as large cap funds make the best option for long-term goals.

Systematic Investment Plan (SIP) is a facility through which you can invest a certain sum of money every month in a mutual fund of our choice. Investors can also increase their SIP amount and make one time or lump sum investments that will aid in reaching their goals faster.

To gain clarity or to know how to plane for your child’s future, you can take help from a financial advisor.

Conclusion: With the rising cost, planning for a child’s future has become an important part of financial planning. Money should not come in between your child’s goals and proper planning will ensure that they have the luxury to opt for the college and course of their choice. So, give your child the opportunity to spread their wings and fly. A financial advisor can help to make it a reality. Get in touch with your financial advisor today.


6 Money lessons you must teach your child.

 





There is no denying to the fact that parents want the best for their children and help them in every possible way to make them better individuals. While children receive formal education from educational institutes, the traditional education system teaches them almost nothing about money. 

Hence, the need to teach money lessons or help children form good money habits fall on the parents. 

On this Children’s day, we show you some of the easy ways that help your kids to inculcate good money habits.

 

1. Explain to them the difference between Needs and Wants:

It is normal for kids to demand things from their parents. Many things will catch their attention. However, is it required to buy whatever your kid wants? Absolutely not!

Whenever your kid wants a particular thing, ask them why they want it. You can follow up with several other questions such as asking them about other alternatives that they already own. You can explain the concept the need and wants. This may help them to cultivate good spending habits in their later life. 

2. Give them a budget

Instead of heading to their whims and fancies, give them a specific sum of money on a weekly or a monthly basis. The allowance may vary from time to time. 

Also, let them know that they may get over and above their allowances if they help around the house such as getting groceries or doing other household chores. This will help them to understand the value of money.  

The value of money is one of the most important money lessons that are going to stay with them for their entire life. The key is to make children realise that everything comes with a cost and they need to plan and work for it. 

3. Help them to cultivate saving habits

In this age of instant gratification, cultivating savings habits has become the need of the hour. Typically, parents give piggy banks to their kids to help them save their pocket money or the money that they have received as gifts from various relatives.

Gift them a clear glass piggy bank found on various shopping sites. As the amount of money is visible through a glass piggy bank, it may encourage your child to save more and help them to prioritise their financial goals over other things.

If they have multiple financial goals, you can give them piggy banks as per their goals. You can also buy some mason jars and ask them to label it with their goals.  

4. Tracking their savings and spendings 

Helping your child to track their savings and spending will result in good money habits as an adult. Before they begin their savings journey, tell them to keep a note of the amount that they are saving in a diary. Once they achieve the required amount, they can open or break their piggy bank. 

Also, motivate them to keep a tab on their spending. This will help your kid to keep a track of their pocket money or save more if they wish to. 

5. Include your child in money conversations

Many parents make the mistake of leaving out their children from some of the critical money conversations. Include your children when you are drafting the monthly budget, or planning to invest as it will also make them familiar with the different aspects of money managing. 

Also, try to bring your children when you meet your financial advisor. While they may not understand most of the things, kids quickly absorb and it helps them to build a perspective. 

6. Be the financial role model 

Kids learn a lot by observing elders. Hence, it is important to become the financial role model that your kids might follow. While parents must make their children understand the value of money, parents should be mindful of the way they are spending money, where they are spending money, and how much are they saving or investing per month. 

Conclusion: Habits cultivated at a tender age has a long-lasting impact. Money habits are no different. With the lack of financial education, parents and elders need to help their children form good money habits.  


Save tax and Plan retirement with Mutual Funds





For most Indians, retirement is the most ignored financial goal. From the beginning of our career, we start chasing short-term goals which give us short-term gratification like buying a car, buying a New smartphone, vacation, etc. Most of our savings are channelized in achieving our Retirement Goal.

However, we all have a desire to save taxes. We can channelize this desire to achieve two goals,

  1. Saving Tax
  2. Creating Retirement Corpus

Under section 80C, a deduction of Rs 1,50,000 can be claimed from your total income. In simple terms, you can reduce up to Rs 1,50,000 from your total taxable income through section 80C. This deduction is allowed to an Individual or a HUF.

To save tax, we normally invest in PPF and other instruments which have a long lock-in period. When you are ready to invest for such a long period, investing in equity is a better idea, as equity is less risky and more rewarding in long term. You may choose to invest in Equity Linked Savings Schemes (ELSS) of mutual funds to save tax under section 80 ( C ).

What is ELSS?

An Equity Linked Savings Scheme (ELSS) is an open-ended Equity Mutual Fund that doesn't just help you save tax, but also gives you an opportunity to grow your money. It qualifies for tax exemptions under section (u/s) 80C of the Indian Income Tax Act.

Along with the tax deductions, an ELSS offers you the opportunity to grow your money by investing in the equity market. ELSS carries a lock-in period of 3 years. Furthermore, you can also choose to invest through a Systematic Investment Plan and bring discipline to your tax planning.

Here's how it will work. Say, one invests Rs 12,500 monthly in ELSS (Rs 1.5 lakh annually) for 25 years of one's working life towards retirement. Assuming a growth rate of 12 percent a year, the corpus could be nearly Rs 2.12 crores, which could be part of one's retirement portfolio in addition to other investments earmarked for retirement. 

SCHEME NAME1 Year2 Year3 Year5 Year7 Year10 Year12 Year15 Year
Capital Invested
Rs 1 LacRs 2 LacsRs 3 LacsRs 5 LacsRs 7 LacsRs 10 LacsRs 12 LacsRs 15 Lacs
Retruns Generated from Various Schemes
Maximum ELSS Return₹ 1,21,559₹ 2,75,071₹ 4,41,203₹ 8,98,110₹ 16,13,266₹ 26,14,434₹ 35,18,416₹ 82,92,953
Minimum ELSS Return₹ 1,00,030₹ 2,29,534₹ 3,50,048₹ 7,25,657₹ 12,12,686₹ 19,86,361₹ 25,83,101₹ 48,77,739
Average ELSS Return₹ 1,10,884₹ 2,51,585₹ 3,89,498₹ 8,08,623₹ 13,58,294₹ 23,01,979₹ 30,64,690₹ 69,33,800
S & P BSE Sensex₹ 1,13,410₹ 2,45,862₹ 3,72,791₹ 6,97,401₹ 11,06,090₹ 17,71,240₹ 23,53,781₹ 47,32,426
PPF Calculated @ Actual Rates₹ 1,07,829₹ 2,24,307₹ 3,50,839₹ 6,37,886₹ 9,76,743₹ 15,94,563₹ 20,93,314₹ 30,01,347


Past Performance may or may not sustain in the future. The above table shows the value of Rs. 1 Lac invested in PPF, Sensex, and various ELSS Schemes as of 31ˢᵗ May of every year. (Valuation Date: 31ˢᵗ May 2018) Note: Amount assumed Rs. 1 Lac in PPF & ELSS. However, deduction u/s 80C has been increased from Rs. 1 Lac to Rs. 1.5 Lacs w.e.f 22ⁿᵈ August 2014.

Disclaimer: The information contained in this report has been obtained from various sources. While utmost care has been taken for the preparation of this report, we do not guarantee its validity or completeness. Neither any information nor any opinions expressed constitute an offer, or an invitation to make an offer to buy or sell any fund. Investors should take financial advice with respect to the suitability of investing their monies in any fund discussed in this report. Mutual fund investments are subject to market risk. Please read the Scheme Information Document and Statement of Additional Information carefully before investing. 


 

आपके जीवन के 3 सबसे महत्वपूर्ण पहलू हमें बचपन से ही सिखाया जाता है कि पैसे बर्बाद न करें और हमेशा सबसे सस्ते विकल्प का चुनाव करें। लेकिन महं...