Investment into Mutual Funds Simplified

Is One of the Following Questions on your mind regarding Mutual Funds?

1. How much to invest in MutualFund?
2. Is my Existing Fund Performing?
3. SIP or Lumpsum?
4. Best Fund Suited to My needs? (Hint : Not always the top performing Fund in a prior period)
5. How can I add an extra 2-3% Return annually?

Benefits of Consulting & Investing For Tax Saving as well as in General for SIP, Lumpsum & Other Mutual Funds Investments with us.

1. Proper Guidance With Respect to Life Cycle Risk appetite Goals.
2. Proper Fund Selection based on above.
3. Follow up periodically. 

Apart From this You will get a ton of supports & markets research from IIFL Research team with products into Govt & Corporate Bonds, Corporate Fixed Deposits etc to achieve an extra 2-3% Return annually.

Practically a no Brainer Right? What are you waiting for? 

Drop a message on Whatsapp 7506265365 or mail at rajeshnair72@gmail.com for more details or help to invest.

Happy to Help.

Five sources of income beyond EPF, PPF that are exempt from Income Tax

Five sources of income beyond EPF, PPF that are exempt from Income Tax : 
→ As per income tax rules any individual having an annual income of more than ₹ 2.50 lakh is required to file income tax return.

→ It is necessary irrespective of the source of income. While salary income and business income are taxed as per the applicable individual tax slabs, there are certain sources of income that are exempt from income tax irrespective of the amount.
→ Maturity proceeds of Public Provident Fund (PPF), Employees Provident Fund (EPF), insurance policy are exempt from income tax.
→ Similarly, there are certain other sources of income that are not taxable : Tax experts say income from gift including marriage gift, share of profit in a partnership firm, educational scholarships, gratuity & ancestral property is also exempt from income tax.

Five sources of income that are exempt from Income Tax :
1. Share of profit in Partnership Firm : The share of profit, received by a partner, in the total income of the firm is exempt from income tax in the hands of the partners. As share of partners is arrived after providing for all expenses & income tax, partnership is not taxable. However, remuneration received by a partner & interest on capital received by the partner is taxable.

2. Marriage Gift : Gifts received by a newly-wed couple during their wedding are exempt from tax. If the gifts are given by immediate family members, such as their parents, siblings or any of their siblings’ spouses, or the siblings of their parents, they are exempt regardless of the value of the gift. Whether it is cash, stocks, jewellery, automobiles, electronics, artefacts, etc., or even immovable presents such as house or land, shall not attract tax & are exempt under Section 56 of the Income Tax Act, 1961.
However, if gifts are not marriage gifts, then they will be taxable if the combined value of the gifts exceeds ₹ 50,000.

3. Educational Scholarship : Any scholarship granted to meet the cost of education is exempt from income tax as per Section 10(16) of Income Tax Act 1961. However, to claim the expenses the scholarship income should have been used to meet the education expenses only.

4. Ancestral Property : The tax applicable while inheriting an asset is called Inheritance Tax or Estate Tax. In India, Inheritance Tax is not levied & (also referred to as Estate Tax) is a tax which is levied at the time of inheriting any asset. Inheritance Tax is not levied in India. So any amount received under a Will or by way of inheritance or in contemplation of death of the payer is exempted from income tax under Section 56 (ii).

5. Agricultural Income : In India, agricultural income is exempted from taxation & not included under total income. Agricultural income refers to income earned from sources that include farming land, buildings on or identified with agricultural land & commercial produce from horticultural land.

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How a Comprehensive Health Insurance Policy differs from a Basic Health Insurance Plan

How a comprehensive health insurance policy differs from a basic plan?

Discussing the concept of a Comprehensive Health Insurance Plan & how it differs from a regular or basic health insurance policy.
→ Health Insurance is essential to safeguard savings in the event of a medical emergency. While there are several options available, customers should research the features & options before deciding on a policy.

→ It's vital to understand that different health insurance plans fulfill different purposes. Some may cover only a specific group of people, whereas some may cover a specific disease.

→ Here, we are discussing the concept of a comprehensive health insurance plan & how it differs from a regular or basic health insurance policy.

Let's understand it under different sub-heads :
1. Coverage : Comprehensive medical insurance covers the cost of hospitalisation, daycare procedures, medical care at home, ambulance charges, among others. It offers extensive coverage & acts as a financial cushion in case of medical emergencies.
On the other hand, a basic health insurance policy covers medical expenses for illnesses or injuries. At the same time, it protects policyholders from sudden medical expenses & reimburses the bills or pays the medical care provider directly on the policyholder’s behalf.
In short, a basic health insurance plan helps policyholders in staying covered against various diseases. While, a comprehensive policy covers outpatient as well as inpatient treatments, including consultations, medical tests as well as hospital stays.

2. Inclusions & Cost : Comprehensive health insurance is generally designed without any capping for room rent/ICU charges & doctor’s fees. It also does not have any sub-limits for any coverage such as domiciliary hospitalisation. It offers the maximum benefit to the insured as compared to the basic health insurance cover & hence the cost is also higher.

3. Value-Added Services : Unlike basic health insurance, comprehensive health plans come with valued added services such as pharmacy & diagnostic centre tie-ups, doctor consultation, gym membership discount & many such features which add to the health cover.

Conclusion : So, which is better?
→ As per market experts, a comprehensive plan is much better than the regular health cover in terms of the sum insured, benefits offered, diseases covered, flexibility, etc. A basic plan has limited benefits.
→ However, it's always on the customers to pick the policy as per their needs & fund availability.

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Why term insurance policies that promise to pay back premiums are avoidable?

Why term insurance policies that promise to pay back premiums are avoidable?
Term Insurance policies also come with an option to return your premiums, but they are costly. If you invest the premium difference in a mutual fund SIP, you can earn more.

→ A pure term life cover is an insurance policy that promises to pay your nominee an amount (sum assured of the policy), if you die. But it doesn’t come bundled with investment, unlike traditional life insurance policies.
→ But insurance companies have another way of selling it to you. What looks like a term cover, but comes with an investment wrapper around it. Though you get some return from this policy even if you do not die, the premium is higher.

Rather Investing via mutual fund SIP earns better returns :
→ The right way to look at a life insurance policy is that you pay a cost for protecting your family’s financial future. That is not an investment. That’s why a pure term life cover comes cheap. Whatever extra you save, on account of a low premium, you are free to invest elsewhere & earn returns.

→ Let’s look at policies from HDFC Life Insurance & ICICI Prudential Life Insurance :
→ HDFC Life has a term policy for a 30-year-old woman, with an annual salary of around ₹ 15 lakh, which she can buy for the next 30 years at an annual premium of ₹ 10,690. In this case, the premiums paid will not be returned, it is a pure term policy. In the same policy, you have the option to get your premium back. Here is where the extra cost starts to stack up. Now, the premium itself increases to ₹ 23,230 a year. Hence, for the next 30 years, you pay an annual excess charge of ₹ 12,540. Over a period of 30 years, that is a difference of ₹ 3,76,230.
→ Let’s not stop here. You can take the difference in the amounts of the two types of policies and break it up into equal monthly investment amounts of ₹ 1045 to invest in equity-oriented mutual funds. At an assumed rate of 10% annually, continued for 30 years, this will grow to roughly ₹ 24 lakh. By opting for the regular term policy instead of the return of premium cover, not only are you saving money but also earning a lot more by investing it correctly.
→ ICICI Prudential iProtect Smart has a return of premium product version & a regular one. The difference in annual premium of the two versions, assuming a maturity age of 60 years & a policy term of 30 years, is ₹ 13,000 annually. That is a difference of ₹ 3,91,000 over a period of 30 years.
→ Monthly investments worth ₹ 1,086 for the next 30 years at an assumed return of 10% a year will get you approximately ₹ 25 lakh. This is a lot more than any return of premium or survival benefit amount that the policy will pay out.

What should one do then?
→ When something sounds too good to be true, it probably is. A term life insurance policy that gives you your premium back is just that. You are losing the opportunity to earn better returns elsewhere by paying a high premium.
→ If we can figure out the most effective & efficient way to invest money for long periods or decades, it’s hard to imagine that insurance companies don’t already know this.
→ Mixing insurance & investment is always costly. It’s always a better idea to separate investment from insurance. Don’t fall for the bogus charm of ‘return of premium’ on your term policy. Maximise your life cover & buy pure term life policies & invest your savings elsewhere, say a quality mutual fund, for better returns. Keep it simple.

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Why HNIs should consider Investing in AIF's

Why HNIs should consider Investing in AIF's

→ Driven by a high-performing market & low interest rates globally, India has increasingly become the preferred investment destination for global investors seeking double-digit returns. India attracted the highest ever FDI inflow of close to $70 billion during the first 9 months of FY 2020-21. It is, therefore, no surprise that millions of Indians are taking to more sophisticated investment vehicles & financial instruments as India continues to multiply wealth. This marks a paradigm shift from traditional physical assets, such as real estate, gold & bank deposits.

→ In addition to mutual funds & equities, Alternative Investment Funds (AIFs) have witnessed significant interest from domestic investors.

What are Alternative Investment Funds (AIFs)?
→ Alternative Investment Funds differ from regular conventional investments like public equities or debt securities. These funds are privately pooled funds which invest in venture capital, private equity, hedge funds, infrastructure, etc.
→ Currently, there are nearly 700 AIF's with over ₹ 4 trillion in investments, an impressive 15x growth since 2015.

What's driving AIFs in India
→ India is one of the fastest growing economies with a vibrant business ecosystem & the third largest startup ecosystem globally. Furthermore, Covid has resulted in major changes such as digitalization across industries, the rapid rise of health tech, widespread adoption of remote work, etc. The startup ecosystem, hence, is well poised to drive digital adoption in India and will be the real delta driving the economy in this decade. This is corroborated by the significant fundraising by India-focused funds in 2020, that raised $3 billion despite the pandemic.
→ In order to continue its fast-paced growth, however, infrastructure conforming to global standards is imperative for our country. AIF's have provided a viable route to make investments in public & private infrastructure much more accessible to investors who wish to capitalize on the opportunity presented by the development needs of India. This serves as a lucrative investment alternative for investors while contributing significantly to the overall economic growth.
→ To put things into perspective, India has already seen a record number of 12 Companies attain unicorn status to date in 2021. Additionally, more startups are getting public-market ready & set to launch their IPO's. These are strong indicators of the Indian market moving towards maturity. AIF's stand to benefit from the developments taking place in the venture ecosystem in addition to the overall infrastructure development drive by public & private players alike.

Growth of AIFs in India
→ The key growth enabler for AIF's has been the funds’ ability to customize & curate products across asset classes. These funds are managed by experienced fund managers who adopt sophisticated strategies. Therefore, these funds do not correlate to the stock market & help investors add diversification & reduce volatility in their portfolios. Proprietary investment techniques coupled with strategic diversification has led to higher returns compared to mutual funds, stocks & bonds.
→ The growth must also be attributed to growing investor awareness & flexibility in product offerings. More HNI's are setting up professionally-run family offices with specific investment mandates & allocation strategies. Investors can appropriate a portion of investable capital to different alternative products based on their risk appetite & target returns.
→ AIF's funds are generally subject to higher volatility, liquidity & credit risks than investments in traditional securities, which may act as a deterrent for investors. Investors today, however, have access to various products that offer high liquidity & low volatility. Most importantly, well-managed funds with a keen focus on comprehensive credit analysis & monitoring can greatly reduce the credit risk involved. For example, venture debt has the potential to yield high double-digit returns with reasonable certainty owing to the nature of the product. It also allows investors to participate in the equity upside, while earning a relatively predictable return on the debt component with regular payouts.
→ Although a long way to go, the investment narrative of India is changing as investors have started to embrace India’s growth story with domestic investors playing a pivotal role. This is driven by the belief that the country can build shared prosperity by transforming the way the economy creates value.

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Comparison : Safety of Savings Bank A/c, Fixed Deposits Vs Stocks & Mutual Fund Investments

Comparison : Safety of Savings Bank A/c, Fixed Deposits Vs Stocks & Mutual Fund Investments

→ In Fixed Deposits & Saving Account, your money doesn't grow but eventually die in fight against Inflation.
→ But In Stock market, your money will Grow & will transform into Wealth Creation.
→ If you don't much understand about Investing than Invest your Hard earned savings in Sector leaders in SIP mode or do SIP in ETF's (Niftybees, Juniorbees, N100 & GoldBees)
→ Real Investing is to be done for a time horizon 5-10-15-20 Years - Not for 3 months to 24 months period.
→ There is very big difference in Investor & Trader.
→ Lifestyle inflation is the biggest threat to our financial independence & retirement planning.
→ You are not truly Wealthy, until & unless you own your Time & Wisdom.
→ It might take months, years OR a Decade, but ultimately everything in Stock Market will revert back to you in More Meaningful & Fruitful Way if you truly desire.

→ "Try to be a master on PATIENCE". Only patience will makes your successful in stock market.
→ The journey will be very Long & Difficult.

→ When we Invest knowing all the facts in Mind & the Right Vision, Big Money Follows.

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Now - Perfect Time to invest in Gold : Sovereign Gold Bonds : 2021 Series (#SGB)

Now - Perfect Time to invest in Gold : Sovereign Gold Bonds 2021

Current Scenario when the pandemic has caused significant disruption with :
→ Falling interest rates: have reduced the returns from Fixed Income Instruments
→ Equity markets plunged significantly due to panic selling caused after spread of COVID-19 & thereafter have continued to be volatile
→ Gold gets attractive as an investment class when equity & debt markets are volatile
All of this leaves Gold in a sweet spot

Why invest in Sovereign Gold Bonds :
Returns: Interest of 2.5% on the Issue Price & which is payable of half yearly basis + Appreciation of Gold
Safety: Sovereign Guarantee on redemption of Money (Principal) as well as on the interest earned
Elimination of risk and hassle-free holding as it eliminates cost of Storage as in physical gold
Liquidity: Tenure of 8 years with exit options in fifth, sixth & seventh year
Tradeable on stock exchanges from the date to be notified by RBI
Taxation Benefit: Exemption from Capital Gains Tax on redemption. 

No TDS Applicable on Interest paid
Indexation Benefit: Will be provided on LTCG arising to any person on transfer of bond
Collateral: Accepted as collateral – Can be kept as collateral / security against Secured Loans
Disclaimer: Please consult your Tax consultant for Taxation purposes..

Risks associated with investing in Sovereign Gold Bonds :
→ Gold is traditionally a very safe investment & typically the risk associated with Sovereign gold bonds is very low
→ However, given the fact that gold rates depend on market performance, any drop in gold rates could put the capital at risk, which would be the case even if one owned physical gold
→ Regardless of market rates, an investor should take solace in the fact that the amount of gold he purchased doesn’t change

Eligibility for Investing in Sovereign Gold Bonds :
→ Resident Individuals, HUFs, trusts, universities & charitable institutions
→ Persons resident in India as defined under Foreign Exchange Management Act, 1999 are eligible to invest in SGB
→ Individual investors with subsequent change in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.

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Comparison & Difference between Index Funds v/s ETF's

Comparison & Difference between Index Funds v/s ETF's
While index funds and ETF’s look similar, there are multiple differences you need to keep in mind before investing in either of them.

Let me highlight the important ones :

1. NAV (Net Asset Value ): Index Funds can be bought/sold like any other open-ended MF at the day end NAV from the AMC where as ETF’s can be bought like a normal stock during trading hours at the real time NAV/Traded Price or iNAV.

2. Expense Ratio: Theoretically, expense ratio of ETF is less than Index Funds but it does not include the brokerage to be paid while buying/selling the ETF through a broker on the exchange & hence don’t compare expense ratios directly between Index & ETF’s.

3. SIP/SWP/STP's: Index fund allows SIP, SWP, STP & ETF’s don’t.

4. DEMAT Account: Demat is mandatory for ETF’s & optional for Index Funds.

5. Bid-Ask Spread: This is extremely important. It is possible that the traded ETF may not have enough volumes & hence the traded price may be different from the live NAV (iNAV/actual to be NAV) resulting in additional cost.

6. Index Funds Vs ETF's - Retails Investor's Choice: What should retail investors choose between Index & ETF? - Retail should stick to index funds over ETF’s.

7. What to look for in Index funds before investing?
a. Index you want to invest in – Sensex, Nifty, S&P 500, Nifty next 50 etc. – depending on the risk/return expectation & diversification requirement of the portfolio
b. Expense Ratio – Lower the better.
c. Tracking differences and Tracking errors of the funds – Lower the better.


How does the AMC make sure the Traded price is close to iNAV?
a. Creating awareness about the ETF where by having natural secondary market liquidity.
b. AMC’s appoint market makers, whose job is to create liquidity in the ETF by quoting buying/selling prices on the exchange & there by keeping the Traded price close to iNAV.
c. If a large investor wants to buy/sell large quantity (Pre defined, lets say ₹ 50 Lakh worth of investment for an example), then the investor can directly reach the AMC & AMC will buy & sell directly at the iNAV & the investor does not need to go through the exchange.

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Debt Funds Vs Bank FDs – Which is more tax-efficient in the long run?

Debt Funds Vs Bank FDs – Which is more tax-efficient in the long run?

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In India, fixed deposits (FD's) continue to dominate the terrain of ‘comfort investments’ for a sizable section of investors, to guaranteed returns & low risks associated with fixed deposit investments, they have been the go-to investment option in India.

However, the tide is slowly turning against fixed deposits, not that people are moving to other investment avenues en masse & ditching FD's completely, but the realization is slowly gaining ground among a section of investors that returns offered by FD's may not be enough to beat inflation in the long run. Interest rates have been slipping since the last few years & lower rates tend to bring down yields on bank FDs. Add taxes to the mix & the investor is left with little in the name of profit. The returns offered by any long term investment avenue can be significantly eroded because of taxation policies.

This is slowly pushing more investors, especially those who want to avoid the riskier equities route to tap into debt funds. Depending on the fund you have invested in, debt funds can offer more impressive annualized returns & what’s more besides coupon payments you can also earn capital gains when bond prices go up as a consequence of falling interest rates. In terms of long term benefits debt funds outscore FD's when it comes to taxation.

Taxation on FD interest earned & Dividends on Debt Funds :

The interest that you earn on bank FD's is considered as your income when it comes to tax compliances. Your FD interest will fall under the subhead ‘Income from Other Sources’ in your Income Tax return. For example, if you fall in the 30% tax bracket & invest ₹ 10,00,000 in an FD for a year that offers 8% interest, your total corpus on maturity will amount to ₹ 10,82,999 and your gains after taxes will be ₹ 10,57,104 which effectively means that your post tax yield is around 5-6% which may not be high enough to tackle inflation in the long run.

One can argue that when it comes to debt funds, the dividend taxation is a villain especially after an amendment was made in the Union Budget 2020 that mandated that dividends received by investors would be added to their taxable income & taxed at their respective income tax slab rates. Previously, dividends were tax-free in the hands of investors as the companies paid dividend distribution tax (DDT) before sharing their profits with investors in the form of dividends. But what makes the case stronger for debt funds despite the dividend taxation conundrum is the fact that the dividend payout is an option that you can choose as an investor & if the tax bite is too much, you can always opt for the growth option.

Taxation on Capital Gains :

The fundamental difference between how fixed deposits & debt mutual funds are taxed is based on when the returns are taxed. For holding period less than three years there is no difference in how FD's & debt funds taxation work – the gains will be added to your income & you will have to pay income tax according to your income.

However, when the holding period is more than 3 years, the FD taxation formula remains the same but the taxation on debt funds changes. After three years, debt fund gains are classified as capital gains & the tax slabs differs for varying holding periods. If your debt funds have been held for more than three years, the gains would be classified as Long Term Capital Gains which attracts taxes of 20% with indexation & 10% without indexation. Indexation adjusts the purchase price of an asset to account for rise in inflation in the period between the purchase & sale of the asset. In the long run, indexation reduces your capital gains & ultimately your tax liabilities.

Another difference comes into play when you factor in TDS (tax deducted at source). For FD's, TDS is applicable on the interest earned if it is more than ₹ 40,000 a year (general citizen) & ₹ 50,000 a year of you are a senior citizen. You can adjust TDS with your tax liability by submitting Form 15G/15H to the bank & later claim a refund but it is a tideous procedure, whereas, with debt funds, you do not have to worry about TDS being levied when you sell your units.

Besides higher returns & lower tax burdens in the long run which would give you an extra mileage in the race against inflation, debt funds are also highly liquid and you can redeem them at a very short notice.

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Why should retail investors go for Exchange Traded Funds (ETF's) rather than Direct Equity?

Why should retail investors go for exchange traded funds (ETF's) rather than Direct Equity?

Direct Equity investment has the potential to deliver much higher returns than fixed income products but for retail investors, it is not easy to handle the risk.

> Undoubtedly, Equity investment can provide much higher return than fixed-income instruments. But equities are subject to market risk & may become highly volatile at times when the economic outlook of the country becomes uncertain like the one we witnessed last year when the Covid pandemic broke out in the country. 

> To handle the risk involved in direct equity investment requires expertise, which most retail investors lack. So financial planners mainly advise retail investors to go through the ETF route to get a higher return at lower risk.

Here are key advantages of ETF over Direct Equity Investments :

1. Risk : An ETF is a type of mutual fund that invests in Equities of an Underlying Index in the same proportion as that of the underlying index. As ETFs track a particular index there is no scope for fund managers' discretion, which sometimes may go wrong. So by investing in ETFs retail investors can expect the return of an index at much lower risk than that of direct equity investment.

2. Diversification : To minimise the risk of Equity investment you need to have a portfolio of stocks across sectors so that if one stock or sector does not perform then returns from other stocks will offset the losses of non-performing sectors/stocks & overall you get a decent return. But to create a proper diversified portfolio one needs to have the understanding of different sectors & stocks & retail investors mainly lack this knowledge.

But by going through the ETF route, you get a readymade portfolio composed of the same stocks in the same ratio as its benchmark index has. Hence the risk gets minimised.

3. Capital Requirement : In case of direct equity, an investor needs to invest a sizable corpus to create a portfolio of stocks that can tackle market risk. But in ETFs you can start with as low as ₹ 5,000 investment & can own a portfolio that is equally efficient as that of the underlying index in handling risk.

4. Taxation : Indirect equity investment, an investor is liable to pay capital gain tax each time he sells stocks depending on period of investment & amount of gain/loss.

However, in the case of an ETF investors are required to pay capital gain tax only when they sell units & not on every transactions made by the fund to realign the portfolio with the benchmark index.

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