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Five SIP facts you may not be aware of

 

This story is fitting for a new as well as an intermediate SIP investor. And with SIPs to the tune of Rs 14,000 crore being pumped into the market, we thought the timing was right to know more about SIPs too. So, let’s get started.

 

1. The best time to start SIP is now

 

If you have heard this before, skip to Point two. But those who haven’t or are currently in the start-now or start-later confusion, here’s why you should not delay your SIP further: the markets are in constant flux; something or the other keeps happening. If you keep procrastinating, nothing good will come out of it.

 

On the other hand, SIPs, by design, are meant to help you navigate the ups and downs of the market, thanks to rupee cost averaging.

 

Rupee cost averaging? Here, your SIPs buy more stocks when they are available at a lower price and buy less when stock prices become expensive. That’s what all investors want, right?

 

 

Sure, you will go through a rollercoaster of emotions, as seen in the table above, but you will come out the other side better than you were before, as seen in the above Sensex chart.

 

Hence, start your journey now.

 

2. Never pause or stop your SIPs at a market high

 

Stopping or pausing your SIPs should be for valid reasons and not because you wish to be clever with your money.

 

Let’s assume both Mr A and Mr B have been investing in HDFC Flexi Cap Fund with a monthly SIP of ₹10,000 for the last 15 years. Mr A keeps investing irrespective of how the market is performing, whereas Mr B pauses his SIPs for three months whenever the Sensex hits an all-time high. Care to guess who is cleverer? Let’s find out.

 

Too clever for your own good?
Pausing SIPs at market high may yield marginally higher returns, but at the expense of a smaller corpus

 

  • Monthly SIP: Rs 10,000 for last 15 years
  • Mr A never stops SIP
  • Mr B pauses SIP for three months during Sensex highs

 

 

Mr B earned a mere 0.13 per cent higher returns for being clever. Worse, he invested Rs 4.5 lakh less and ended up with a lower corpus by 11.46 lakh.

 

Therefore, you win no points for trying to be clever with your SIPs. Just keep at it; stay consistent.

 

Plus, Mr B will always have to correctly guess the market’s future movement. What if he, like all of us, gets it wrong most of the time? The final returns would be even lower!

 

3. Don’t try to be tactical with your SIP amount

 

Let’s say you keep doing an SIP of Rs 10,000 for 10 years. It will not make any meaningful difference whether you increase your SIP to Rs 15,000 when the market crashes or decrease it to Rs 5,000 when the markets rally.

 

That’s because your SIP amount gets increasingly insignificant compared to the corpus you have accumulated in the long run. See the table below, and you’d observe how the weight of an SIP instalment reduces over time.

 

 

4. Be patient with your SIPs. Time in the market is important

 

The most important factor with your SIPs is time. The more time you invest, the bigger your corpus will get. Let’s see how much wealth you can create by 60 if you start a Rs 10,000 monthly SIP at the age of 25 years, 30 years and 35 years.

 

The power of time in the market
Start early and witness the magic of compounding in your later years

 

 

The numbers in the above box tell you everything. The younger you start, the better it is.

 

5. It matters when you need the money

 

Timing matters for SIP investors.

 

Say, you kept doing your SIPs religiously, and when it was time to withdraw, the market crashed. Your overall returns would be hit too.

 

But if the markets rally, so would your overall wealth, as seen in the table below.

 

Climax gone wrong
It can all go wrong if you plan to withdraw when markets crash

 

SIP: Rs 10,000 per month in HDFC Flexi Cap Fund (Regular)
Duration: 10 years

 

 

Fortunately, there’s a solution to ensure your hard-earned investment is not wrecked at the last minute because of the market: Systematic withdrawal plan (SWP) and proper asset allocation .

 

Source- Valueresearchonline

Know about Section 195 – Income Tax for NRIs in India

 

The law says that if you earn income, you must pay income tax. But if you do not fall in the tax bracket or have paid excess tax, the Government will refund you, but that will come later; after you have paid income tax.

 

One mechanism that the Government has in place to ensure tax payment and curb evasion is TDS or Tax Deducted at Source. It is a basic form of income-tax collection; you may have seen such deductions reflected in your salary slip. TDS is also applicable on a range of income types, including interests earned and commissions received.

 

The Income-Tax Act, 1961 has specific sections to address the issue of TDS for different types of earnings – Salary (Section 192), Securities (Section 193), Dividends (Section 194), interest other than interest on Securities (Section 194A), lottery wins (Section 194B) and even prize money on horse racing (Section 194BB).

 

And then there is Section 195.

 

The NRI Tax

 

Section 195 spells out the tax rates and deductions on payments made to Non-Resident Indians (NRIs), who are required to file tax returns in India for income received or accruing or arising in India or deemed to accrue or arise in India. But this can be a tricky area. For example, TDS does not come into play when a Mutual Debt Fund pays up the proceeds of redemption to a Resident Indian, but it does not mean an NRI is exempted. This is where Section 195 comes into play – it identifies the key areas pertaining to tax for NRIs.

 

 

As is done with Resident Indians, the deduction is to be made at the time of crediting or making a payment, whichever event occurs earlier; this includes crediting in Suspense Accounts or any other account where the payment is credited.

 

 

While, Section 195 does not prescribe any threshold limit, and the TDS amount has to be computed on the entire amount payable. The onus of making the deduction falls on the payer – i.e. anyone making the payment to an NRI, irrespective of whether the entity is an individual or a company/organisation.

 

 

TDS Rates

 

What this means is that the payer needs to be aware of TDS rates under Section 195:

 

  • Income from investments: 20%
  • Long-term capital gains in Section 115E: 10%
  • Income by way of long-term capital gains: 10%
  • Short-term capital gains (as per Section 111A): 15%
  • Any other income by way of long-term capital gains: 20%
  • Interest payable on money borrowed in foreign currency: 20%
  • Royalty from Government/Indian concern: 10%
  • Other royalties received: 10%
  • Fees for technical services from Government/Indian concern: 10%
  • Any other income (e.g. rent on property owned): 30%

 

Surcharge and education cess, which must be statutorily added at the prescribed rate, can be ignored if payment is made as per the Double Tax Avoidance Agreement (DTAA).

 

 

NRI Exemptions

 

As stated earlier, computing TDS for NRIs can be tricky; for instance, Section 195 does not mention salary paid to an NRI in India; this is instead covered under Section 192. Sometimes, an NRI may have to be reimbursed by cheque payment for out-of-pocket expenses; this is not covered under Section 195 as there is no income element in the process.

Also, under Section195 (3) and Rule 29B, an NRI can apply for a nil-deduction certificate, provided the following conditions are fulfilled:

 

  • The NRI concerned is up-to-date on tax payments and tax returns
  • He/She has not defaulted in payment of tax, interest or penalties
  • He/She has been carrying on business in India for at least five years without a break, and the value of his/her fixed assets in India exceeds Rs 50 lakh.

 

 

Such certificates are valid until their expiry or cancellation by the assessment officer.
Also, if as an NRI, you are looking for tax breaks, you could look at the account categories that ensure that. Let us say you have an NRE Account with ICICI Bank; funds lying in such accounts will not attract any tax.

 

 

However, if you have an NRO Account, the interest earned on it would be taxable at the rate of 30%, in addition to the applicable cess and surcharge.

 

 

TDS Procedure: To deduct TDS under Section 195, the payer should first obtain Tax Deduction Account Number (TAN) under Section 203A, by filling Form 49B, available online.

 

  • PAN is a must for both the payer and the NRI concerned, who must be told of the deduction and the TDS rate. Also, the deducted amount has to be deposited by the 7th of the following month through authorised banks or the income-tax department.
  • Following this, TDS return can be filed electronically by submitting Form 27Q; this has to be done on specific dates: on Jul 31 (for the first quarter; Oct 31 (for the second quarter); Jan 31 (for the third) and May 31 (for the fourth).
  • The TDS certificate in a specified format i.e. Form 16A (Certificate of Deduction of Tax) can be issued to the NRI within 15 days of due date of filing TDS Returns, as given above.

 

Source- ICICIBANK

 

How to retire at 45

 

Gokul, a dynamic 32-year-old project manager at a prestigious IT firm, has charted a clear course for his future: early retirement at 45. His vision extends beyond the confines of his corporate career, and wants to start his own blog.

 

At the heart of his plans is his family – his wife, who manages the household and their five-year-old son. As the sole breadwinner, Gokul brings home a monthly salary of Rs 1.2 lakh, which comfortably covers their monthly expenses of around Rs 80,000 and leaves enough room for life’s little luxuries. But given his circumstances, can he afford to retire early? Let’s find out.

 

His son’s higher education

 

Parents want to provide their children with the best education they can. And Gokul is no different. He wants to allocate Rs 15 lakh for his son’s higher education. However, given the average inflation rate of 6 per cent in India, the same Rs 15 lakh course will likely balloon to around Rs 32 lakh in 13 years.

 

Fortunately, Gokul has the means to cover this cost, as he has accumulated Rs 7.5 lakh in a few tax-saving mutual fund schemes . This amount will grow to the desired amount by the time his son gets out of school, assuming his investment increases 12 per cent each year.

 

Calculating retirement corpus

 

Since Gokul has a monthly expense of Rs 80,000 and wants to retire by 45, he’ll need to save a little more than Rs 5 crore. We arrived at this figure based on three assumptions:

 

  • That he and his wife live until 85.

 

  • The average inflation rate in their post-retirement years is 6 per cent.

 

  • That they ensure their nest egg (roughly Rs 5 crore) grows at 9 per cent during their retirement years.

 

 

A Rs 5 crore retirement kitty is a formidable sum to accumulate in the next 13 years, but we dived head-long to see if this can be achieved. When we pored over Gokul’s current investments, we found he has a provident fund of Rs 7 lakh, and a monthly EPF contribution of Rs 7,200 – an amount matched by his employer.

 

Assuming EPF grows 8 per cent each year and Gokul’s monthly contribution rises 10 per cent, he would amass Rs 60 lakh by age 45. In addition, he should put his savings to work for him. Since he’s saving Rs 40,000 each month, it would be ideal if the money is invested in one or two flexi-cap funds, which are diversified equity mutual funds .

 

That’s not it. (The ambition of retiring early comes with a price attached, after all). Gokul will have to step up his investment by 10 per cent each year. If he can successfully do this and the flexi-caps annually grow at 12 per cent, he’d build a Rs 2.19 crore corpus. But even then, Rs 5 crore seems like a long shot.

 

Our suggestion

 

If Gokul and his wife can put the squeeze on their monthly expenses by just Rs 10,000 each month, it will work wonders on two fronts:

 

  • His retirement corpus will reduce to Rs 4.38 crore.

 

  • He can start investing the additional money he saves in flexi-cap funds . Meaning, he can start investing a total of Rs 50,000 every month.

 

Do this, and he retires by the age of 45! Combining the EPF and flexi-cap money will help Gokul achieve his retirement target.

 

The magic of equity

 

Gokul should invest in flexi-cap funds stems from the time-tested theory of equity being a true wealth generator in the long run. Contrary to popular belief, the risk quotient of equity flattens over the long term. ‘Long term’ is the key here.

 

On the other hand, if Gokul invests in debt-oriented funds, it would be an uphill task – a polite term for impossible – to scale his retirement peak.

 

Parting shot

 

Once Gokul retires, it is important to transfer a certain portion of his money from flexi-cap funds to the more conservative debt-oriented fund. Because, during retirement, capital preservation is of utmost importance.

 

Having said that, he shouldn’t go overboard with debt-oriented funds. He still needs to keep 35-50 per cent of his money in an equity fund. Flexi-cap remains a good option even at this point in time. This will ensure his retirement nest egg doesn’t exhaust during his lifetime.

 

Last but not least, Gokul should watch his withdrawal rate. Limiting annual withdrawals to 4-6 per cent of the retirement corpus will eliminate risks in future.

 

Keep in mind

 

  • Gokul should have life insurance and medical insurance. Consider critical illness riders.

 

  • He should have an emergency fund that covers six months of expenses. For this, use a combination of a liquid fund and a sweep-in deposit.

 

Source- Valueresearchonline

 

Investing for women

 

The world is changing. So is India.

 

We’re in an era of growth. And never before in the history of finance and economics have women been more instrumental. While women are increasingly taking charge of their finances, they are still far behind where they can be.

 

So, let’s see how our women can invest and grow their money better.

 

Myths around women and money

 

One of the common reasons why many women shy away from investing is the number of myths surrounding women and finance.

 

The biggest of them is that women do not understand finance or do not have the mathematical abilities needed to make the right decisions. Another myth is that women are not good at managing money and they are risk-averse.

 

On top of everything else, the belief that women love to splurge is one thing that makes many people believe that women do not make good investors.

 

What’s the truth

 

A lot of these myths, in reality, are simple gender biases. One doesn’t need a lot of background in Maths and Statistics to make wise financial decisions.

 

Although there is no research available in India, some reports from the developed economies suggest that women end up spending more on essential family needs like food, clothing, medical expenses etc. This leads to lower surplus investable income with them, hence the myth that they spend more.

 

And yet, despite the conservative household budgets, our women, through generations, have been managing to save money. All that needs to change for women to generate wealth is to put this money in suitable instruments.

 

Financial decisions are not rocket science. Common sense is as instrumental to finance as any other decision-making process, and women have it in plenty and then some. As far as the more technical aspects of investing are concerned, there’s always expert advice available, just like it is for men.

 

How is the scenario changing

 

For women to be in charge of their wealth, the game has to change on multiple levels. Change has already begun and is visible to an extent.

 

For instance, at the national level, India’s recent economic growth has been nothing short of a perfect winning-against-all-odds script. Organisations like the IMF and the World Bank are raving about India’s resilience even in the currently chaotic world.

This means more opportunities for women to invest.

 

 

On the other hand, the push behind women’s entrepreneurship, STEM education, diversity and inclusion at workplaces, and women’s safety, has enabled them to earn more.

 

 

The latest AMFI data indicates that the number of women between 18 and 24 who invest in mutual funds has grown more than four times (62 per cent annualised growth) from December 2019 to December 2022.

 

Similarly, the number of women investors in the 25-35 age bracket has doubled (grew at 33 per cent) over a similar period. In contrast, the older age groups have grown relatively slowly, at 11 per cent annualised growth.

 

 

How to start your investment journey

 

If you still haven’t started investing, our first advice is to begin. There is no better time to invest than now. So, just start.

 

Also, do not hesitate to seek expert advice or professional support when choosing the right investment instruments, specially in the early stages of your journey.

 

Remember, the basic principles of investing and the larger economic framework of the country remain the same for men and women. So, any piece of advice on investment remains as valid for your investment journey as it is for your male counterparts.

 

However, here are some simple steps summarised to start your journey.

 

  • Start investing with discipline. You can start an SIP with as less as Rs 500, and do your KYC and payments online.

 

  • Stay regular. Don’t lose tempo, get bored, or forget to keep investing.

 

  • The next step in investment is to plan your goals. Your goals can be either short-term or long-term. For instance, retirement is a long-term goal, while buying a car can be a short-term goal. In a long-term horizon, you invest regularly for five years or more. A short-term investment horizon is one to three years.

 

  • Choose the right fund. This critical step may look complicated, but this is no rocket science.

 

  • A debt fund is a good choice if you’re investing for a short-term goal. For any long-term goal, an equity fund is the best option. It balances your risk and returns well.

 

  • If you’re a first-time investor in an equity fund, you will initially benefit from an aggressive-hybrid fund. It reduces your risk and lets you witness the value of systematic investing over two to three years.

 

  • Once you get a hang of the market, you can quickly move to pure equity funds, say a flexi-cap fund, for good returns.

 

  • Increase your SIP gradually. If you’re a working woman, keep increasing your SIP as your earnings increase. If you’re a homemaker, you can still invest an extra amount whenever you get cash gifts, inheritance etc.

 

  • Remember, your key to success is the consistency of investment so that you can create an emergency corpus or a nest egg for your old age.

 

The message is simple.

 

The fundamentals are not gendered. So, your journey doesn’t have to be stereotyped, either. Women can manage finances; they do manage finance. And successfully so.

 

The other key principle to note is that there’s saving, and there’s investment. And, if you want to grow your wealth, you must begin investing now.

 

India is on the cusp of something great. The next 25 years are expected to make the country reap the magical benefits of the last 75 years of effort. And there’s no reason why women should not benefit from this golden period!

 

Source- Valueresearchonline

How to save big on your health insurance premium

 

Having higher medical coverage is the order of the day. That’s because medical costs are rising faster than average inflation. With medical treatment set to grow at 8.6 per cent this year, as per Global Medical Trends Survey of 2023, a hospital bill of Rs 5 lakh today will double in eight years’ time. Hence the need for higher medical coverage.

 

But a higher insurance policy is accompanied with affordability issues, more so because premiums increase with age. Since this can burn a hole in your pocket, we explore four options that can save a sizable chunk on your premiums.

 

Option 1: Basic medical policy

 

If health cover: Rs 15 lakh. The insurer will cover your medical bill up to Rs 15 lakh.

 

Option 2: Basic policy with deductible

 

If health cover: Rs 15 lakh; Deductible: Rs 25,000. You pay the initial Rs 25,000 before your insurance policy kicks in.

 

Option 3: Basic policy with super top-up

 

If base health cover: Rs 5 lakh; Super top-up: Rs 15 lakh. The super top-up will come into effect once you exhaust the basic plan.

 

Option 4: Basic policy with deductibles and super top-up

 

If base health cover: Rs 5 lakh; Deductible: Rs 25,000; Super top-up: Rs 15 lakh. You first pay the deductible from your pocket, then exhaust your basic policy and finally use the super top-up policy.

 

Now that we understand the four options, let’s consider which plans will give you significant health coverage at a lower premium. To provide a real-life example, we considered HDFC Ergo. Refer to the table ‘Four ways to get a health cover’.

 

Four ways to get a health cover

 

Clearly, the basic policy with deductibles and super top-ups (Option 4) can save you 37-39 per cent on your annual premiums compared to a vanilla health policy (Option 1). That said, each of these policies has its share of pros and cons.

 

Basic medical policy (Option 1)
Pros: Convenient and no complications.
Cons: Annual premiums are very high.

 

Basic policy with deductibles (Option 2)
Pros: 15-25 per cent lower premiums than option 1.
Cons: Need to pay deductible amount from your pocket. Not all insurers provide this option.

 

Basic policy with super top-up (Option 3)
Pros: 18-22 per cent lower premiums than option 1. Treated as two policies; helps you and your spouse save tax.
Cons: Super top-ups come with a few strings attached, such as limits on hospital room rent. Treated as two policies, so need to file your claim twice.

 

Basic policy + Deductible + Super top-up (Option 4)
Pros: Pay the most affordable premiums. Treated as two policies; helps you and your spouse save tax.
Cons: Pay the deductible amount from your pocket. Treated as two policies, so need to file your claim twice. Super top-up plans can insert sub-limits, such as a cap on hospital room rent.

 

What you can do

 

We think all four options are viable and usable. You can pick the one that suits you best.

 

  • Choose a basic health policy if you prefer convenience over cost.

 

  • Choose a basic plan with deductibles provided the limited options you get here suit you on other dimensions. For most people, a small deductible component won’t burn a big hole and yet reduce your annual premium by a considerable amount.
    Additionally, a lot of people can be financially vulnerable to one major episode of hospitalisation, and that is exactly what health insurance is there for. Even though there’s a small deductible, the utility of a large health policy remains intact.

 

  • Choose a basic plan with a super top-up if you want to:
    a) enhance your health coverage and protect yourself from galloping medical inflation.
    b) get additional tax benefits. Since a basic plan and a super top-up plan are considered separate policies, you and your partner can individually claim tax benefits of up to Rs 50,000 (under Section 80C).The best practice is to buy a super top-up plan from the same insurer. However, check the super top-up’s fine print, as they may have certain sub-limits and clauses.

 

  • Choose a basic plan with deductibles and a super top-up if you are looking to pay the most affordable annual premium and receive benefits mentioned in the above point, but of course, with certain conditions that come attached with a super top-up plan as explained above.

 

Source- Valueresearchonline

 

Sovereign Gold Bond Scheme 2023-24 Series II opens today; all you need to know

 

The Reserve Bank of India (RBI) has established the issue price of the Sovereign Gold Bond (SGB) for the September 2023 series at ₹5,923 per gram. The upcoming installment of the program will be available for subscription from September 11, 2023, to September 15, 2023.

 

In a press release pertaining to the price, date, and other particulars of the Sovereign Gold Bond, the RBI stated, Sovereign Gold Bond Scheme 2023-24 Series II will be open for subscription from September 11–15, 2023. The nominal value of the bond based on the simple average of closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three working days of the week preceding the subscription period, i.e., September 06, September 07, and September 08, 2023, works out to ₹5,923 per gram of gold.

 

Buying SGBs at discounted prices

 

The SGB scheme is a government-backed investment instrument designed to enable investors to acquire gold without the need for physical possession. These bonds are denominated in grams of gold and are issued in multiples of one gram. The minimum investment allowed in SGBs is one gram, with a maximum limit of 500 grams per individual per fiscal year (April to March).

 

In collaboration with the Reserve Bank, the Government of India has resolved to provide a discount of ₹50 per gram below the face value to investors who apply online and complete the payment through digital channels. For these investors, the SGBs will be available at an issue price of ₹5,873 per gram of gold.

 

The SGBs come with an eight-year tenure and provide an annual interest rate of 2.5 per cent. This interest is paid twice a year, in the months of June and December. Upon maturity, the bonds are redeemed at the prevailing market price of gold.

 

The SGB scheme for the 2023-24 Series 2 will be available for purchase through various channels, including banks, the Stock Holding Corporation of India Ltd (SHCIL), designated post offices, and recognized stock exchanges, namely the NSE and the BSE.

 

This scheme is exclusively available for purchase by resident individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable Institutions.

 

Investment details

 

The SGB scheme imposes specific maximum investment limits based on the investor category. For individuals and HUFs, the maximum investment cap stands at 4 kg of gold per fiscal year, which runs from April to March. This means that both individuals and HUFs can invest up to 4 kg of gold collectively across various tranches during the financial year.

 

This investment limit applies cumulatively across different tranches within the same financial year. For example, if an individual invests 2 kg of gold in the initial SGB tranche in April, they may invest another 2 kg of gold in the subsequent tranche in May. However, the total investment within that financial year must not exceed 4 kg.

 

Additionally, this investment ceiling also applies when acquiring SGBs from the secondary market. If an individual buys 1 kg of SGBs from the secondary market in April, they can only purchase an additional 3 kg of SGBs from the secondary market in the same financial year.

 

These limitations are established by the government to curb excessive gold investments, given the volatile nature of the asset, with the aim of safeguarding investors from potential losses. If you intend to invest in the SGB scheme, it’s crucial to be mindful of these investment limits and carefully assess your financial objectives and risk tolerance before making investment decisions.

 

Redemption details

 

The redemption value of an SGB is determined based on the simple average of the closing price of gold with 999 purity over the previous three working days, as reported by the IBJA. This redemption value is denominated in Indian rupees.

 

To illustrate, if the closing price of gold on Monday, Tuesday, and Wednesday stands at ₹5000 per gram, the redemption price on Thursday will be ₹5000. This calculation hinges on the nominal value of the bond, which is the price at which it was originally issued.

 

The SGBs mature after an eight-year tenure, and they can also be redeemed prematurely, beginning from the fifth year. However, there is a penalty for early redemption. In the first year of premature redemption, the penalty is one per cent of the bond’s nominal value, and this decreases to 0.5 per cent for each subsequent year.

 

The SGBs represent an attractive investment avenue for those looking to invest in gold without the burden of physical possession. They provide a guaranteed annual interest rate of 2.5 per cent and enjoy government backing. Furthermore, the redemption value is tied to the prevailing market price of gold, ensuring investors receive a fair return on their investment.

Source- Mintgenie

 

What are the benefits of having NRI Account

 

Top 5 Benefits of NRI Account

 

A Non-Resident Indian (NRI)/Person of Indian Origin (PIO) can open NRI Account as Non-Resident External (NRE) and Non-Resident Ordinary (NRO) Accounts, which will enable an easier and convenient fund transfer for him/her from abroad to India. Both of these accounts allow the amount in foreign currency to be credited in the account. However, NRE Account does not allow any rupee credits into the account and is, therefore, suitable only if one needs to transfer overseas income and funds in an Indian bank account. It also provides you with additional benefits like repatriability, preferential tax treatment, etc.

 

NRI Account Benefits:

 

 

  • Convenient money transfers to India – Whether one has opened an NRE or NRO Account, one can deposit the income earned in overseas country in such accounts. Thereafter, the funds can be accessed through any bank branch in India as well. Accordingly, having an NRI Account in India is an easier mode of remitting money to India from overseas. Given the existing banking relationship, you can also expect competitive exchange rates for such funds transfer.

 

  • Flexibility of repatriation of funds – The current regulations in India allow flexibility in the repatriation of the balance available in NRE Accounts, for both the principal as well as interest income. In simple words, the balance in NRE Account can be transferred back to the foreign country without any restrictions. However, in case you open an NRO Account, you can transfer the interest income earned in such account without any limit, but certain limits are applicable on transfer of the principal amount as per extant forex regulations in force.

 

  • Better interest rates – The focus of the Central Banks across the globe has been to adopt the decreasing interest rate scenario, and in line with such philosophy, other banks provide very low-interest rates on the Savings Accounts. On the other hand, NRE Accounts in India tend to offer better interest rates. As such, an NRI Account can help you garner better returns for your surplus funds.

 

  • Easier operations within India – An NRI Account allows you to perform banking operations easily within India, even while you may be staying abroad. The bank will generally allow you to register the operational mandate to allow the operations of the bank account on your behalf. Such a mandate can be registered for your parents, relatives, spouse, siblings, etc. A cheque book and ATM Card can also be provided to the mandate holder, to enable easy withdrawal of the funds. Further, an NRO Account can also allow you to open a joint account with a resident Indian, allowing joint operations.

 

  • Tax exemption for NRE interest income – As per the prevailing tax laws in India, the interest income earned on NRE Accounts is not subject to Income Tax and thus remains tax-free for the account holder. Due to this exemption, the bank will not deduct any tax in respect of such interest income on NRE Savings Account or NRE Fixed Deposit. However, the exemption is applicable only for NRE Accounts and not for NRO Accounts. Accordingly, the bank will deduct tax at source for such interest income on NRO Accounts.

 

 

As such, NRIs can manage their money in a better manner through NRI Accounts and conveniently manage the fund transfer from abroad to India effortlessly.

 

Source: ICICIBank

Mutual funds that still enjoy indexation benefit

 

Ever since debt funds, international funds and gold funds lost indexation benefits – an inflation-adjusting feature that lowers tax liability – investors, especially conservative ones, have been in the dark about what to do now.

 

Krishnan V, one of our subscribers, is among them. He contacted us, asking if there’s a mutual fund with a 40-60 equity-debt split that also offers indexation benefits.

 

We hope the below table answers the question.

 

As you can see, balanced hybrid, multi-asset and dynamic asset allocation funds still retain indexation benefits. Let’s look at them at a glance.

 

Balanced hybrid funds

The equity allocation in these funds usually fluctuates between 40 and 60 per cent, activating indexation perks.

 

That said, there are no balanced hybrid funds currently in the market. Instead, what you have are a few solution-oriented funds. A few examples of these funds are UTI’s children’s career savings funds and retirement benefit pension funds.

 

Multi-asset funds

These funds invest in at least three asset classes, with a minimum allocation of 10 per cent in each.

 

The asset classes include equities, debt, real estate, international securities and commodities like gold and silver.

 

However, the equity allocation in these funds can vary widely, and the indexation benefit depends on this equity allocation. The fund receives indexation benefits only if the equity allocation lies within the 35 per cent to 65 per cent range.

 

So, keep a close eye on the fund’s asset allocation to ensure it qualifies for the indexation benefit.

 

Moreover, these fund’s decision to invest in commodities and real estate do not sit well with us. We have, for long, believed that they are not great investments in the long run.

 

Dynamic asset allocation (AKA balanced advantage funds)

Technically speaking, these funds can choose to have a 35 to 65 per cent allocation in equities and the remaining in debt. That said, quite a few of them have a higher equity allocation, thereby limiting the choice of conservative investors and retirees.

 

What got us thinking now is whether it makes sense to do a 40-60 equity-debt allocation yourself.

 

There are two reasons why:

 

  • There are very few mutual funds in the 40-60 equity-debt space.
  • We also wanted to see if the do-it-yourself (DIY) method is tax efficient.

 

So, we pitted UTI Children’s Career Fund – Savings Plan with a DIY allocation, and here’s what we found:

 

Although the DIY asset allocation option has a marginally higher tax liability, its post-tax returns are considerably higher, as shown in the above table.

 

There are two reasons why:

 

  • The DIY investment (40 per cent in a flexi-cap fund and the remaining 60 per cent in a short-duration debt fund) generated 9.2 per cent as against the UTI fund’s 8.35 per cent
  • The DIY tax liability was not too high compared to the UTI fund because flexi-cap fund gains up to Rs 1 lakh are exempt from tax.

 

The last word

Clearly, the DIY route makes more sense for retirees or conservative investors looking at a 40 per cent exposure to equities.

 

However, don’t dive into it headlong. Opt for the DIY option only if you have the knowledge and time to monitor and adjust your portfolio.

 

Source- Valueresearchonline

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