Financial Planning Archives

6 compelling reasons to start investing for retirement now

Did you know that 86% of Indians above the age of 50 years regretted not starting early to save for their retirement, according to the India Retirement Index Study (IRIS) conducted by Kantar for Max Life Insurance Company?

If you don’t want to regret it, then it is essential to start saving and investing for your retirement at the earliest.

However, we understand that it is easier said than done. Moreover, when you are young, retirement is the last thing on your mind.

In this article, we will look at some reasons why we should invest for our retirement as soon as possible.

Benefit from the compounding effect

When you start investing for your retirement, you can get the full benefits of the power of compounding. Compound interest is nothing but the interest you get on the interest you earned on your initial amount from previous periods.

Time is the most crucial element to gain the complete benefit of compounding. This is because the longer you stay invested, the higher the impact of compound interest on your initial investment will be. So even if you invested a higher amount at a later stage, you might still accumulate a lower amount than a person who started investing earlier than you, even if it was a smaller amount.

For instance, let us consider the example of two friends, Priya and Riya. Both of them started working on the same day. However, Priya started to invest from the first month with ₹5000 per month, but Riya started investing after 10 years with ₹ 10,000 per month.

So, after 20 years from their first paycheck, Priya and Riya had invested ₹ 12 lakhs each.

However, if we consider an annual average return rate of 12%, then Priya would have accumulated ₹ 50 lakhs while Riya’s investment value would be ₹23.23 lakhs. That is almost less than half of Priya’s accumulated amount.

That’s the power of compound interest.

Fewer obligations

When you are younger, you have fewer obligations. During this time, you might not have a dependent spouse, children, or elderly parents who are financially dependent on you. If you are not yet a parent, you might not have to think about the children’s education and other related expenses. As a result, you can save a higher amount towards your retirement.

In your 40s, although your earnings power is higher than in your 20s, you will have many responsibilities, such as paying home loan EMI, children’s educational expenses and saving money for future education. So, the percentage of your income you can earmark your retirement will decrease.

Take higher risk and reap higher rewards

When you are young, you can take higher risks. This is because investing in risky asset classes such as equities requires a longer time frame. Equity investments have the potential to give higher returns than other asset classes over the long term. When you start investing early for retirement, you have the bandwidth to take higher risks and invest in equities, which can help you reap higher returns over the long term. As we have already seen the power of compounding, you can accumulate a larger retirement corpus by investing in equities for the long term.

Read: How to invest in mutual funds for your retirement

Inflation

Inflation is a silent killer that diminishes our purchasing power. The amount of items and services that we can buy with a certain amount today will not remain the same after 10 or 20 years. You will need more money to buy the same amount of items and services after a few years.

For instance, the value of Rs. 1 lakh will go down to ₹29,000 in 20 years, even considering an average inflation rate of 6%.

So, assuming that your current monthly expense is ₹ 25,000, then you will need ₹33,700 in five years and ₹.2.57 lakhs in 4 years to buy the same amount of goods and services.

The only way to ensure that your savings don’t outrun your expenses during your retirement life is to start investing early and ensure that your investments are growing at a higher rate than inflation. Again, equity as an asset class has historically given higher returns than the inflation rate.

Increase in life expectancy

According to UN Estimates, India’s expectancy will hit 81.96 in 2100. To put this into context, India’s life expectancy in 2022 was 70.19, and it was 35.21 in 1950.

This means the average number of years a person will live after retirement will increase. As a result, you will need more money to live out your post-retired life.

For instance, if you consider your life expectancy to be 80. In this scenario, you will need Rs.2.25 crores for 20 years post-retirement. We are considering a present earnings of ₹ 40,000, a basic monthly expense of ₹ 25,000, and the present age as 35.

However, when the life expectancy goes up to 90 years, you need ₹3.17 crores to fund your expenses after retirement. It is important to note that we are considering that your money after your retirement will grow at 7.5% every year. We are assuming an inflation rate of 6%.

So, we have seen that you will need to accumulate more money with increased life expectancy.

Increase in healthcare costs

Did you know that the medical inflation in India is the highest in Asia? India’s medical inflation was recorded at 14% in 2021. Medical inflation includes the cost of hospitalisation, medicines, consultation charges, and lab tests. This means you have to pay more to get healthcare-related products and services.

We are all aware that medical expenses are most likely to form a bulk of monthly expenses after retirement. Hence, even if your other expenses go down, expenses regarding medicines and treatments might go up. As a result, you need to start investing early to take care of your post-retirement expenses.

Conclusion

In this current scenario, retirement is a non-negotiable financial goal. With the rising costs and the changing scenarios, it has become imperative to start investing early for retirement.

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7 things you must know about index fund

Are you becoming more interested in investing in index funds and fulfilling your goals? As of July 31, 2023, the total Assets Under Management (AUM) under index funds stood at Rs.1.8 lakh crore in India up from Rs. 94,589.50 crore in July 31, 2022 i.e. almost 90% up in one year.

So, why are investors getting hooked on index funds? Let’s find out.

Ease of understanding

Picking the right mutual fund is crucial for achieving investment returns. However, everyone only has a little time and know-how of the funds to select the right fund. Here comes index funds, which mirror specific market indices and invest in the same underlying assets as the market index and in the same proportion. This helps the investors easily acquire knowledge of the underlying assets and helps in tracking the fund’s performance by comparing it with the market index itself.

Lesser expenses

The fund managers of index funds do not have to pick the underlying securities, such as stocks or bonds, for the fund, nor do they have to reallocate the assets from time to time. Due to this reason, the expense ratio of index funds is lower than actively managed funds, where the fund manager has all the responsibilities and rights to choose the underlying assets and change them according to market conditions.

Correlated returns

Since the index funds replicate the market index it follows, the returns of the fund are positively correlated with the movement of the index. For instance, suppose an index fund mirrors the Nifty 50, and the index rose by 10% in the month. Look at the Nifty 50-linked index fund. You will find that the price of one unit of the mutual fund, i.e., Net Asset Value (NAV) of the fund, had also increased by around 10% in the same period. This makes tracking the performance of the funds easier for investors.

No fund manager’s bias

Fund managers decide the underlying assets of any mutual fund except for index funds. Here, the fund manager must maintain the exact ratio of each underlying security as per the benchmark index. For instance, if an index fund is linked to the Nifty 50, then the fund manager has to invest in the same fifty stocks that are in the Nifty 50 index. Moreover, the ratio of each stock has to be the same in the fund as in the index. This leads to no fund manager’s bias, which helps investors get returns similar to the index.

Index funds’ investment strategy

Most of the mutual funds try to outperform the benchmark index they track. However, the index funds investment strategy is not to beat the benchmark but rather to replicate it. This makes the index funds suitable for investors looking for returns similar to the index.

Tracking error

Every mutual fund has a benchmark index that is used to measure the fund’s performance. In actively managed funds, the fund manager aims to beat the returns the benchmark indices offer.

However, the index fund aims to match the benchmark’s returns. The difference between the fund’s and benchmark’s returns is called the tracking error. We can say that the index fund with a low tracking error has done better at replicating the underlying index than an index fund with a higher tracking error.

Different types of index funds

Index funds can be categorised based on the type of the underlying benchmark index. There are:

Broad market index funds are linked to broader indices such as Nifty 50 and S&P 500.

Market capitalisation index funds are linked to indices comprised of companies’ stocks falling under certain market capitalisation.

Smart Beta Index Funds are linked to indices that follow certain factors or investment strategies. There are also thematic index funds linked to indices with specific investment themes and strategies.

Sector-based index funds are linked to indices with stocks of any particular sector, for instance, Nifty IT or Nifty Bank.

Debt Index Funds are linked to bond indices or any other fixed-income indices.

Commodity Index funds are linked to indices having commodities in them, such as the Gold Index.

Wrapping up

Index funds have emerged as a powerful tool for achieving financial goals. Their simplicity, low expenses, and ability to deliver correlated returns with benchmark indices make them popular among investors.

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What you need to know about ITR filing as a non-resident Indian (NRI)

More than three crores of Indians live outside of their homeland, and if you are one of them and wondering whether you need to file your income taxes here in India or in the country you are dwelling in, then you need to read this.

Often people think that every Indian who lives out of India is an NRI; however, that is not the case. For taxation purposes, the Income Tax Department of India has specific criteria to qualify as an NRI. Therefore, to understand whether you require filing your taxes in India or not, you need to find out your residential status.

Who is an NRI?

As per the Income Tax Act of 1961, an NRI or Non-Resident Individual in India is a person who is not a Resident in India. So, now you need to know who is a Resident in India, right? As per the Indian government and Income Tax Department, a Resident in India is any individual who:

Was in India for at least 182 days in the previous year or
Was in India for 60 days or more in the previous year and at least 365 days in four years immediately preceding the previous year.

So, if you do not meet these two criteria, you will be considered an NRI in India.

However, if you are a crew member outside India, or left India for employment outside the country, then the 60 days in the second criterion above will be replaced by 182 days. This also goes for Indian citizen and person of Indian origin (PIO) who visits India during the year.

Again, the 60 days in the second criterion above will be substituted by 120 days if the Indian citizen or the PIO has a total income, apart from income from foreign sources, over and above Rs. 15 lakhs in the previous year. These individuals will be considered deemed residents of India only if they do not pay or are liable to pay taxes in other countries.

Which incomes of an NRI are taxable in India?

An NRI needs to pay income tax on their income generated in India. While a resident in India has to pay income tax on the total income irrespective of the origin of the income. Let’s take an example to understand this.

Suppose you are working in the UK for two years now, and in FY 2022-23, you came to India for 25 days. This makes you an NRI, as you do not meet any of the two criteria to be a Resident in India. Now let’s say you earn around Rs. 50 lakhs in a year from the job you are doing in the UK, and back home in India, you have two house properties from which you earn a rental income of around Rs. 50,000 in a month. Therefore, the yearly rental income from these house properties is Rs. 6 lakhs.

Since your income from India is above Rs. 2.5 lakhs, you need to file ITR in India, though there will not be any tax liability if you opt for the default income tax regime. Your income from your job in the UK will not be taken into consideration for taxation purposes in India.

Now let’s say, you came to India in FY 2022-23 for 5 months or approximately around 150 days, then your income of Rs. 50 lakhs which you earn in the UK will also be considered for income tax payment if you do not pay any taxes on your income in the UK. Also, if you had lived in India for 150 days in the previous financial year, then you automatically become a Resident in India, and not an NRI as per the Finance Act, 2020.

Note: The interest you earn on your NRE account and/or FCNR account will be tax-free as well. However, the interest earned on NRO account/s will be taxable in India if you are an NRI.

What are the tax slabs applicable for NRIs?

The tax slabs for NRIs and residents in India are the same. So, if you are an NRI having income from India, then you have to pay taxes as per the following slabs:

Old Tax Regime		New Tax Regime u/s 115BAC
Income Tax Slab	Income Tax Rate	Income Tax Slab	Income Tax Rate
Up to ₹ 2,50,000	Nil	Up to ₹ 2,50,000	Nil
₹ 2,50,001 – ₹ 5,00,000	5% above ₹ 2,50,000	₹ 2,50,001 – ₹ 5,00,000	5% above ₹ 2,50,000
₹ 5,00,001 – ₹ 10,00,000	₹ 12,500 + 20% above ₹ 5,00,000	₹ 5,00,001 – ₹ 7,50,000	₹ 12,500 + 10% above ₹ 5,00,000
Above ₹ 10,00,000	₹ 1,12,500 + 30% above ₹ 10,00,000	₹ 7,50,001 – ₹ 10,00,000	₹ 37,500 + 15% above ₹ 7,50,000
		₹ 10,00,001 – ₹ 12,50,000	₹ 75,000 + 20% above ₹ 10,00,000
		₹ 12,50,001 – ₹ 15,00,000	₹ 1,25,000 + 25% above ₹ 12,50,000
		Above ₹ 15,00,000	₹ 1,87,500 + 30% above ₹ 15,00,000

Source: https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-0

What are the documents required for filing ITR?

As an NRI when you file your income tax in India, the documents you need to keep handy includes –

Bank account statements of your NRE/ NRO or FCNR accounts
Details of the income you earned in India
Form 26AS in case of any tax credit is applicable or TDS is deducted
Form 16 in case of any TDS is deducted on salary or Form 16A for TDS deduction on income other than salary. For instance, the interest earned on your NRO account, when credited to your account, TDS is deducted. So, for the same and similar instances, you need to submit Form 16.
You need to have a valid passport, PAN card for verification purposes.

So, if your residential status is of an NRI and your income from India is over Rs. 2.5 lakhs for FY 2022-23, you must gear up for filing the ITR soon as the last date for doing is 31st July 2023.

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Why you need to file ITR even if your income is below the taxable limit

In a country of over 144 crores, only around nine crore people file their ITR. Astounding, isn’t it? That is only around 6.25%, while in the US, the percentage of the population paying income taxes is close to 45%.

However, the reason behind the majority of people not filing their ITR is their lower income level. As per 2022-23 data, the per capita income in India stands at Rs. 172000. This is below the minimum taxable income of Rs. 2.5 lakhs per the old regime and Rs. 3 lakhs per the new regime. That said, filing an income tax return even when a person’s annual income is below the minimum taxable income could help in different ways.

Benefits of filing ITR

Claiming tax refund: If you are a salaried employee whose employer deducts TDS or a freelancer, or self-employed professional whose clients deduct TDS, even though your annual income may not be above the threshold but only by filing an ITR, you can get the refund of these taxes. Even banks deduct TDS on the interest payments on your deposits above Rs. 40,000, so it becomes essential to file the ITR to get all this money back into your account if you do not have any tax liability. If you do not file an ITR or even file it after the deadline, there is no scope for getting these refunds. Taxes deducted from your income in a particular financial year can only be refunded in the next assessment year. Suppose your client has deducted TDS from your payment in the FY 2022-23. You can get a refund if you do not have the tax liability or a higher TDS was deducted than your tax liability by filing the ITR in AY 2023-24
Helps in getting a loan: Income Tax returns are regarded as one of the valid proofs of one’s income. Thus, availing a loan and filing ITR are connected deeply as the banks or any other lenders often want to see the ITR return for evaluating the income of the borrower/ applicant before approving any loan amount. So, even if you have an annual income lesser than the minimum taxable income, still filing the ITR can help you avail loan, especially if you are self-employed, as ITR is the most important income proof. It makes the application process for the loan easier as the lender does not have to crosscheck your bank accounts, salary slips and other documents to evaluate your income.
Mandatory for owning foreign assets: If you own any movable or immovable foreign assets, you need to file an ITR. While filing the ITR can get you certain benefits or exemptions for your investments, not filing the ITR can attract severe penalties. So, even if someone gifts you any asset in a different country, you need to show that in the ITR by filing the same.
Essential for international travel: Many countries only provide a visa when the applicant has an ITR. Suppose you are travelling for work, education or leisure. In that case, the visa is only given when you submit the ITR as proof of income. Thus, if you have plans to go for higher education in foreign countries or travel or apply for jobs, it will be beneficial to start filing ITR soon. While some countries ask for only a single-year ITR, the year preceding the year of flying abroad, others ask for two or more years of ITR. Therefore, the sooner you start filing the ITR, the better it will be for your plans.
Carry-forwarding losses: If you are someone who invests in the stock market or trades in the market, or a solopreneur, then by filing ITR, you can set off your losses against your profits. Often people in the initial years of self-employment, or sole-proprietary businesses, do not file ITR. Many people believe that it’s pointless to file an ITR in the first few years due to expected losses. Instead, there is the benefit of doing so, as you can set off losses in the upcoming years when your venture turns profitable. The income tax department allows you to set off losses for up to eight consecutive years. However, for this to happen, you need to file the ITR every year to keep a record of your profit and losses with the IT department. Therefore, when your losses are adjusted against your profits, your tax liability can decrease as well. Suppose you invested in certain stocks three years back and in July ’22 that is FY 2022-23, you sold those stocks, but at a loss. Now, until FY 2030-2031, you can set off this loss against your capital gains.

Self-assessment and e-filing

With the upgraded e-filing process of ITR, you can easily self-assess your taxable income and file the return without any hassle. If your annual income is below the taxable income threshold, then this can be one of the easiest and wisest ways to file your ITR. All you need to do is to follow these steps:

First, arrange all your documents like Form 16/ 16A or Form 26AS, PAN card, bank statements, Aadhaar card, and salary slips.
Then you need to calculate your income, which can be done with the pre-filled ITR that the IT department has introduced recently. All you need to do is to check that all the incomes and expenses entered in the form are correct.
Also, check the investments if entered properly so that you can avail the deductions against them. However, this is only applicable if you are opting for the old tax regime.
Then submit the form and click on verify.
You get three options for the verification process, choose the one that suits you the best and you are done.
After the verification is completed, if there is any tax refund to come, it will be reflected in your registered and pre-validated bank account with the IT department within 2-3 months.

So, if you are yet to file the ITR for FY 2022-23, do it right now as the clock is ticking!

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Key documents you need to keep handy before ITR filing

July is here, and you must be busy collecting all your documents for filing the ITR. So, have you made a checklist of all the documents you need to keep handy before sending that email to your CA or sitting before your laptop to file the ITR on your own? If you still need to, then this article is just for you, and if you already have made the checklist, there is no harm in making sure you have not missed any.

List of general documents

For filing your ITR for FY 2022-23, irrespective of the source of income, you need these documents:

PAN Card: You need to use your PAN number to either log into the Income Tax Department website to file the ITR or put the number under the details required in the ITR form.
Aadhaar Card: You need to keep this document handy as well, and you need to add the Aadhaar number as well in your ITR form. Moreover, the government has asked everyone to link their PAN with their Aadhaar, so linking both documents can help before filing the IT.
Bank Account Statements: To file your ITR, make sure to download the account statements for all your current bank accounts from April 1st to March 31st of the relevant financial year. For instance, this year, while filing the ITR, you need to submit the bank statement of all your accounts from 1st April 2022 to 31st March 2023.
TDS Certificates: If your employer, client, bank or anyone who has deducted TDS from the money they paid to you, you need to get the TDS Certificates from them which is Form 16, or Form 16A or you can download directly the Form 26AS as well from ‘Traces’ website.
Investment Account Statements: For all your investments, especially for those you can claim deductions and exemptions under sections 80C/80D/80E/80TTA and others you need to submit the investment account statements as proof of investments.

While these are the documents almost every assesse will need, here are some more specific documents that you need to have if you have income from the below-mentioned sources.

Income from salary

Rent receipts and agreement: If you receive HRA and live in a rented apartment, for claim deduction available for HRA, you need to produce the rent receipts and rent agreement.
Gratuity payments details: If you have received a gratuity in a financial year, you need to keep the documents for the same handy to claim the deduction available for gratuity payment.
Travel bills and leave encashment: Similar to gratuity, you need to keep all the travel bills with you to get an exemption for all your spending. Also, if you have encashed your leaves, make sure, you have thorough proofs for the same, to produce before the IT department to claim exemptions.
Pension certificate: Pension is also considered within salary income, and thus if you are a pension holder, you need to submit the pension certificates while filing ITR.

For interest and dividend incomes

Interest certificates: If you have received interest from your bank savings, fixed deposit accounts, or from post office savings account or any such financial vehicle, that pays regular interest, you need to submit proof of such income for filing ITR. You can submit interest certificates that your bank provides or you can also submit bank statements or post office account statements.
Proof of Dividend Income: If you have received dividends from your investments, you need to keep the dividend warrants handy before filing ITR. As dividends are now taxable in the hands of the shareholder, you must submit all the proof of your dividend income.

For income from house property

Income from house property is one of the major sources of income in India. If you are one of them who receives rent for his or her property, here are the documents you need to have for ITR filing.

Rent Agreement: Of course, the primary document is the rent agreement that you need to submit as proof of receiving rental income from your house property.
Address proof of your house property: You need to submit any proof of address for the house property for which you are receiving rental income. If you share ownership of the property, you must provide proof of this information in order to claim any available deductions.
Interest for your home loan: If you have purchased the house property on a home loan, for claiming deductions under section 24(b). Under this section, you will get deductions of up to Rs. 2 lakhs on the interest on a home loan for a house property, which is self-occupied for residential purposes.
First-time homebuyers: If you are a first-time homebuyer, then you can get an additional deduction under section 80EE for up to Rs. 50000 against the interest you pay for the home loan.

For income from capital gains

Purchase and sale deeds, agreements: If you generated income from capital gains, such as selling house property, stocks, and other such investments, you need to display the documents, which can prove the sale and the value of the sale. These documents can also help you get the tax exemptions available for capital gain incomes.
Brokerage slips, transfer expenses: If you have incurred any expenses while transferring the investments, or house properties, which you have sold, can generate capital gains, you should keep some proof for such expenses, or brokerage slips and others to claim deductions against these expenses from your taxable income.
Reinvestment purchase deed: If you have re-invested your capital gains from one house property to another, or invested in certain types of bonds such as NHAI bonds, then you can get an exemption on the capital gains. However, for these, you need to submit the purchase deeds, which prove that you have invested the capital gains from the premium property.

Filing ITR can be hassle-free once you have all these documents as per your sources of income ready with you.

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How to analyse the performance of a fund?

Before investing in a mutual fund, it is important to analyse the performance of the fund. Most of us simply look at the returns of mutual funds and invest as per our friend’s suggestions.

However, there are better ways to analyse the performance of a fund. In this article, we will discuss some key parameters that can help us analyse a mutual fund.

Check the Fund’s Rolling Returns

Compounded Annual Growth Rate (CAGR) is the most common type of return that is used to measure the fund’s performance over a specific period. However, CAGR shows the fund’s performance as of a specific date. It does not show the performance of the fund during the entire period.

On the other hand, rolling returns show the scheme’s annualised returns taken for the specific rolling returns period, e.g., one year over a specific period, say 10 years. In this case, the fund’s rolling returns will consider the one-year return the fund gave daily during these 10 years.

The rolling returns data gives us a better picture of the fund’s consistency and how the fund has performed over time.

Compare The Performance of an Actively-Managed Mutual Fund With Its Benchmark

As investors, if we are investing in an actively-managed mutual fund that a fund manager manages, we will expect the fund to provide higher returns than the benchmark index.

The benchmark index is the broader market index used to judge the fund’s performance. Depending on the type of mutual fund, every mutual fund has a specific benchmark index.

For example, Nifty 50 can be a benchmark index for large cap funds. If a fund gives higher returns than the benchmark index, we can say that it has performed better than its benchmark.

So, when analysing two funds of the same category, if Fund A has beaten its benchmark by a higher degree than Fund B, we can say that Fund A has performed better than Fund B.

Check the Fund’s Consistency

The second way to analyse the performance of a fund is to check the returns consistency of the fund. To do this, we can check the fund’s performance during various time periods and business cycles.

It is easier for a fund to give good returns during a market rally. However, we can see the fund’s real mettle during tough periods when the markets are trending lower. If the fund has consistently beaten its benchmark and peers over the long term, say ten years or more when the market was trending downwards, it is a better performer than other funds.

Conduct Peer-to-Peer Comparisons

In addition to comparing the fund’s performance against its benchmark, we can check its returns against its peers. Here, a large cap fund is compared against other large cap funds.

For instance, a fund might have beaten the benchmark by 1%, but if other funds have beaten the same benchmark by more than 1%, then the fund we are analysing has performed poorly compared to its peers.

Check Sharpe Ratio or Risk-adjusted Returns

We know that every mutual fund carries risk, although the risk of the funds will depend on the fund category. Typically, debt funds carry lower risks than equity funds in the short run.

A high return generally comes on the back of high risks. So, we expect a fund to take a high risk to generate high returns.

However, we need to see if the fund delivers high returns for every extra unit of risk taken. This shows if the fund can handle the risk they have taken in a much more effective way.

The Sharpe Ratio helps us check if the fund is giving higher returns for every extra unit of risk.

A higher Sharpe ratio indicates a better risk-adjusted return. It means the fund is giving higher returns relative to its risk than other mutual funds, so when comparing two mutual funds, the fund with the higher Sharpe ratio is the better fund.

When analysing a fund’s performance, it’s essential to consider these various factors that can provide insights into its past, present, and potential future performance.

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7 simple ways to beat investment FOMO

Have you ever felt regret or anxiety about missing out on a potentially profitable investment opportunity? We can call it FOMO (fear of missing out) in investing.

It is a very common thing and happens with a lot of us.

However, it is essential to keep the FOMO from getting the best of us. FOMO can lead us to hasty investment decisions, such as buying a stock or a mutual fund without research which can impact us negatively.

So, managing your FOMO and taking rational investment decision is essential.

Let’s see how we can keep FOMO at bay.

Break free from the herd

We all behave differently under different circumstances. Take a moment to reflect on what makes you feel guilty about not investing in the popular option. Do you feel like you lost the chance of gaining big bucks, or do you feel alienated from others?

If you feel the same emotions when you see your friends getting married or going on foreign vacations, the real reason might be envy or your innate wish to fit in.

Many of us want to feel like we are a part of a group. This is nothing but herd mentality. True, this mentality was important when humans were hunters and gatherers, but it can be detrimental when it comes to your finances.

So, instead of giving charge to your emotional mind, bring your logical and rational mind to the centre stage.

Overcome comparison and start investing at your own pace

If you feel you have missed the bus and think you are too late to start investing, there is nothing to worry about. We all have our own timelines.

I started investing when I was 25. Now, I see students who have already invested a decent amount through side hustles. When I was a student, internet access was quite limited. So, it would be wrong if I compared myself with them. Moreover, I have also seen people who haven’t started investing and like to spend their money travelling and living their lives. That is also okay.

So, there is no need to be hard on yourself. If you have realised that you need to invest, you need to plan for your next steps. The main criteria for investing shouldn’t be the action of your peers.

Assess your financial grounds

Now that you have realised the importance of investing, the first thing that you need to do is understand yourself. What type of investor are you? Are you willing to take on higher risks and handle the short-term market volatility of equity investments?

This is not an exhaustive list. But, the important thing is to understand where you currently stand on financial grounds such as your income, debt and other financial obligations.

After considering all these factors, you can determine how much risk you can take on your overall investment portfolio.

It is easy to look up to your friend who has made a massive kill in crypto and regret it. But your financial situation might be vastly different from your friend’s financial status. So, it is essential to know yourself before you catch FOMO.

Identify your investment goals

Raise your hands if you want to earn returns from our investments and see your money double within a short span of time. But have you asked yourself why you want to see your money double?

Leaving aside the fact that it feels good to have more money and splurge on it, we all have different reasons. Some of us want to build a retirement corpus so that we don’t have to ask for money from our children when they are old and grey, while some want to travel to a different country every year for a month.

So, determine your goals and classify them into short-term, medium-term and long-term ones. You can then research to figure out the best way to achieve your goals.

Carry out diligent research

Researching the investment options that give you FOMO is the best way to tackle it. Are you jealous of your friend’s spectacular gains in a small-cap fund or a small-cap stock? Research about that respective fund or stock. You can check the volatility of the fund or stock. You might find that your friend has a high-risk appetite and stayed invested despite double-digit negative returns for a considerable amount of time. But the main question is, do you expect the performance of the fund or stock to repeat in the near future, and do you have the risk appetite to handle the volatility?

No investment strategy works all the time

When you research that particular investment option, you will observe that the investment option didn’t perform well all the time. There will be years when it underperformed its peers and gave spectacular returns for two to three consecutive years. It is because the market works in cycles, and the performance of most investment options comes in ebbs and flows.

Be patient

Waiting is the best way to curb any FOMO that you are feeling. Everything looks hunky-dory when you are in the honeymoon phase, and then reality strikes.

If you ever experience FOMO, it’s best to wait and observe how the new investment option is doing before making any decisions. Taking time to evaluate will give you a clearer understanding of the situation.

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The 20% TCS on international credit card spending: What you need to know

From 1st July, 2023, you will have to pay 20% TCS on your international credit card use if it exceedes Rs.7 lakhs in a financial year. TCS, Tax Collected at Source, is a tax collected by the seller from the buyer and deposited to the government. Till 30th June, the TCS rate is 5%.

In an earlier circular, the government has mentioned that all international credit card use will attract a 20% TCS.

However, the Finance Ministry on Friday said, “To avoid any procedural ambiguity, it has been decided that any payments by an individual using their international Debit or Credit cards up to Rs 7 lakh per financial year will be excluded from the LRS limits and hence, will not attract any TCS.”

This change establishes an equal upper limit of Rs. 7 lakhs, which currently applies to international educational and medical expenses.

However, you will be able to claim it back during ITR filing.

Here’s a snapshot of the events:

The TCS on Liberalised Remittance Scheme was 5%.
Currently, the scheme has a limit of $250,000, which is around ₹2 crore. Individuals need approval from RBI for remittance above this limit.
The use of debit cards, forex cards and bank transfers fell under the scheme.
The FY2023-24 Budget increased the TCS rates from 5% to 20%.
Overseas tour packages and funds remitted under LRS (other than for education and medical purposes) came under this revised rate.
International (other than medical and education-linked sectors) credit card transactions was included under the LRS ambit.
As per an earlier circular, you had to pay 20% TCS on your international payments through credit cards.
Now, you only need to pay the 20% TCS if the total transactions in a financial year exceedes ₹7 lakhs.

Let us look at how the update will impact different circumstances. We are considering the 20% TCS on international remittances that will come into effect on 1^st July, including the use of credit cards.

Vacation

This new update will make your international vacations expensive.

Let us assume you have taken a tour package for your European vacation. You have to pay 20% TCS on the package value of ₹ 10 lakhs, i.e. ₹2 lakhs.

This will increase the cost of your tour package to ₹12 lakhs instead of ₹10 lakhs. Moreover, you might have to pay more on GST and other charges.

The travel planner will collect the TCS from you and deposit it to the government.

Now, whether you have taken a package or not, when you make purchases such as a museum ticket, taxi rides, food and drinks through your credit card, you might have to pay 20% TCS if the total transactions exceeds ₹7 lakhs.

The new update does provide a little relief to people. However, you have to be very mindful of the transactions and plan your vacations accordingly.

Your credit card issuing bank will charge the 20% TCS on transactions above the limit and deposit to the government.

Education and medical cases

In the case of education loans, TCS of 0.5% is applied to remittances made for foreign education for amounts exceeding ₹7 lakhs. This provision has remained unchanged in this year’s budget.

However, if there is no education loan, the money parents send abroad will attract a 5% TCS if the amount is above ₹7 lakh. This provision existed before this year’s budget and has remained unchanged.

But, as the TCS is now revised to 20%, parents have to prove that the money is being used for educational purposes to get the benefit of the lower rate of 5% for amounts above ₹7 lakhs.

Tuition fees, dormitory fees, lab fees, exam fees, books and stationery, and university hostel fees can be easily linked to education and will come at a lower rate. However, it might be difficult to make the connection if your children stay in a shared apartment. Moreover, other expenses where the connection could not be made will fall under the revised TCS rate of 20% above ₹ 7 lakhs.

The situation will be similar for medical cases as well.

Conclusion

International vacations that exceed ₹ 7 lakhs might become costlier as most people make international purchases through credit cards. It is to be noted that the maximum ₹7 lakh threshold is for the entire financial year. So, if you make two or more international vacations or trips, you might easily exceed the limit.

Moreover, the 20% TCS will be applicable on international holiday packages.

The cost of education and healthcare-related costs that can’t be directly linked to these sectors will also come under the higher rate.

So, it is important to plan for international visits in a proper manner.

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Changes in Debt Funds taxation: What it means for you

The government has made a significant shift in the taxation of debt mutual funds. From 1^st April 2023, there will no longer be long-term capital gains benefit with indexation for a holding period greater than three years. This change means investments will now be taxed as per your income slab, regardless of the investment duration.

In the current scenario, if investors invest in non-equity schemes, i.e., debt funds, gold ETFs, and international funds, for less than 36 months, they are currently subject to a marginal rate of interest tax. Investors can take advantage of 20% tax with indexation advantages for holding periods longer than 36 months, which makes them attractive compared to other traditional saving instruments such as bank FDs, National Savings Certificate(NSC) and others.

What can debt fund investors do?

While this might come as a blow to many investors, now that it is here, we need to understand how to go about it.

With indexation benefits out of the picture, it may adversely impact the tax you have to pay on your debt funds investment. Indexation acted as compensation for inflation. However, if we compare bank FDs, debt funds still have the upper hand. It is because the returns in debt funds accumulate and compound over time. This is not the case in FDs. In FDs, the interest income above ₹40,000 for individuals below 60 years is subjected to a 10% TDS (Tax Deducted at Source). In addition, interest on FDs comes under ‘income from other sources’ and is added to the total income and taxed accordingly. But in debt funds, there is no tax on returns until you redeem your units. Hence, even though the returns on debt funds might be similar to other debt products, there is potential to earn more in a debt fund.

Also, open-ended debt funds are extremely liquid. You can invest and redeem at any time. However, with bank FDs, you might have to pay a penalty charge for early withdrawal.

In addition to debt funds, the recent changes also impact international funds. However, there is an exemption for funds with 35% or more of their equity invested in domestic markets. As a result, you can look at funds that invest in domestic and international stocks.

If you are into gold funds and gold ETFs, you can look at sovereign gold bonds if you have an investment horizon of seven years. However, the primary issuance of these bonds is open during certain days of the year as per the schedule fixed by RBI. Liquidity might also be an issue if you sell your investments before seven years.

Conclusion: This blog post explored the key change in non-equity funds and what it means for investors like you. It is important not to make rash decisions and to make informed decisions about future investments in debt funds.

What Happens When There is No Nomination in Mutual Funds

If you are reading this, there is a high chance that you know about mutual funds or have already invested in mutual funds. Mutual funds are investment vehicles that pool investors’ money together and invest in a diversified portfolio of securities, such as stocks, bonds, and other assets. One key aspect of mutual fund investing is the nomination process. This is the process that allows investors to designate a person or entity to receive the benefits of their investments in case of their untimely demise.

However, we have seen many instances where investors may fail to nominate a person to receive their mutual fund holdings after death. Moreover, they might need to remember to update their nominee details after marriage. This can lead to various complications and legal issues, as the distribution of the deceased investor’s assets may be subject to lengthy legal battles or delays. In such cases, the mutual fund company may be required to freeze the investor’s account until the rightful heirs are determined, resulting in a loss of investment opportunities and potential gains.

In this article, we will look at the steps you need to take to claim the mutual fund units when there is no nomination so that mutual fund investments are seamlessly transferred to you after the death of your loved one.

Here are the documents that you will need to make a claim:

Transmission Request Form (Form T3) for Transmission of Units to your account
Death Certificate of the deceased unitholder(s) in original or photocopy duly attested by a Notary Public or a Gazette Officer.
Copy of PAN Card or guardian if the claimant is a minor.
KYC Acknowledgment or KYC Form of the claimant. In the case of a minor, the claimant form of the guardian will be required.
Cancelled cheque with your name pre-printed or a copy of your recent bank statement or passbook. It should not be more than three months old.

In addition to these documents, you will need to take care of a few formalities depending on the amount of money you are claiming. The process is a little easier if the amount is less than ₹ 2 lakhs.

Here are additional requirements if the transmission amount is up to ₹2 Lakh:

The Bank Manager needs to verify your signature, as indicated in Annexure-Ia. In the case of minors, the guardian’s signature must be verified (for an account in the minor’s name or a joint account with the guardian).
Any appropriate document that indicates the relationship between you and the deceased investor.
As per Annexure-II, Bond of Indemnity needs to be provided by all legal heirs to transfer ownership of units without a legal representative. However, the bond of indemnity is not required if you submit the Succession Certificate or Probate of Will or Letter of Administration where you are named as a beneficiary. In this case, an affidavit as per Annexure-III is sufficient.
Each legal heir must submit an individual affidavit, as stated in Annexure-III, to be recognized as an heir.
The NOC from other legal heirs as per Annexure-IV should also be provided, as applicable.

Now, if the transmission amount is more than ₹2 lakhs, in that case, you need the signature on the transfer to be attested by a Notary Public or a Judicial Magistrate First Class (JMFC). If the claimant is a minor, then the signature of the guardian needs to be attested.

In addition to that, individual affidavits need to be given by each legal heir along with a notarised copy of the probated will or succession certificate or letter of administration or court decree in case of Intestate Succession.

So, it is best to nominate the right person so that your beneficiaries don’t have to undergo all these tedious processes. And, if you are the heir, you can request them to check if they have nominated the right person and revise it if it needs to change.

Recently, the market regulator, The Securities and Exchange Board of India (SEBI), has made a new rule which states investors should submit a nomination or give a signed declaration to opt out of the nomination. This option will be available to investors who subscribed to mutual fund units on or after August 1, 2022. The folios will be frozen for investors who don’t comply with it. The deadline for this exercise is March 31, 2023.

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