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Will I be taxed twice for protecting the money needed to reach my long-term goal?

 

Most of my money is in equities. Now, if three years before retirement, I move it to a debt fund, I believe I will have to pay capital gains tax as the gains are likely to be more than the basic exemption limit of Rs 1 lakh. But then later, will I be taxed again if I set up a Systematic Withdrawal Plan (SWP) from the liquid fund to my bank account? – Anonymous

 

Yes. The realised capital gains will be taxed in both instances.

 

However, paying capital gains tax in both instances does not mean paying twice the taxes. In fact, in each instance, only the gains for the relevant holding period are taxed.

 

In addition, it always makes sense to switch your money from equity to a fixed-income option two-three years before reaching your long-term goal. That’s because equity is capable of throwing nasty surprises over shorter periods.

 

Therefore, as you come closer to the goal, it is important to move your money to a less volatile asset class (fixed-income) in a systematic manner.

 

This is where an SWP (systematic withdrawal plan) can be useful. Diverting your money from equity funds to a fixed-income fund through SWP reduces the risk of exiting at a market low.

 

Source- Valueresearchonline

Should one consider investing in innovative SIPs?

 

Since the equity market is climbing a new high every other day, would you suggest investing through Smart SIP? – Anonymous

 

Smart SIPs are an innovative offshoot of a regular SIP.

 

They are smart because the amount of money that gets invested in equity each month depends on how the markets are faring.

 

They have an algorithm that decides whether the markets are expensive or cheap based on specific parameters. So, if the algorithm believes the market to be richly valued, only a part of your SIP amount is invested in equity. The rest of it is diverted to a liquid fund, which is a type of debt fund. And if company stocks are trading at a discounted price, more money is invested in equity and less in a liquid fund.

 

That is broadly how smart SIPs work.

 

In theory, it looks like a winning strategy. You invest less in equity when they are expensive and seek refuge in a debt fund, and vice versa. But in practice, there is an element of timing the market, which no-one can perfect on a consistent basis.

 

The power of simplicity

 

In fact, the plain-old SIP is actually a solution to the problem of timing the market. In this case, you keep investing in the market regardless of whether it is expensive or undervalued. While this may read like a high-risk option, SIPs benefit from rupee-cost averaging.

 

For the layperson, rupee-cost averaging means that you buy more mutual fund units when stock prices go down and fewer units when prices are high. So, this simple yet effective strategy negates the risk and stress of second-guessing and timing the market. Additionally, it helps you to be disciplined with your investments, a key ingredient to building wealth in the long run.

 

To summarise, we suggest you stick with regular SIPs and keep it simple.

 

Source- Valueresearchonline

The Demand For CFP Professionals On The Rise As More Indians Look For Professional Financial Advice

 

According to the Financial Planning Standards Board Ltd. (FPSB) press statement issued on February 15, the global count of Certified Financial Planner professionals (CFPS) has increased by 5.1 per cent compared to the prior year, as more than half of individuals who have never received financial planning guidance plan to seek it within the next three years.

 

Meanwhile, in India, The CFP professional community has reached a record high of 2,731, a surge of 8.5 per cent. The increase is attributed to the escalating demand for professional financial planning guidance in the country.

 

“The surge in the number of Certified CFPs in India reflects a growing awareness among individuals regarding the importance of professional financial planning. Factors such as increasing financial literacy, a complex financial landscape, changing demographics, and regulatory changes have contributed to this rise,” says Nita Menezes, Founder and CEO, Financially Smart & MoneyPrastha.

 

Hrishikesh Palve, director & deputy head, product, Anand Rathi Wealth, elaborates on the reasons why there is an increase in demand for professional finance advice and CFPs.

 

Rising Disposable Income:

 

The number of ITRs filed by people earning between Rs 10 lakh and Rs 25 lakh has increased by 291 per cent. Further, in the range of gross total income up to Rs 5 lakh, 2.62 crore returns were filed in AY 2013–14 and 3.47 crore forms in AY 2021–22, representing a 32 per cent rise. The country’s growing economy and higher disposable incomes have empowered individuals to invest and seek guidance for effective wealth management,” says Palve.

 

Increased Financial Product Complexity: Complex financial products require expert guidance for informed decisions. There is a vast range of products to pick from for example in equity we have mutual funds, direct equity, portfolio management services (PMS), etc and under debt as a category, we have fixed deposit (FD), bonds, debt mutual funds, etc. Apart from these we also have asset classes such as real estate, gold, commodities, etc, and picking the right of these asset classes can get overwhelming for the investors.

 

Demographic Shift:

 

With a young and aspirational population seeking financial security and early retirement planning, the demand for Certified Financial Planners (CFPs) has surged. The consistent increase in SIP numbers depicts how the investors are focusing on planning for the long term,” adds Palve.

 

Lack Of Financial Literacy: A significant portion of the population lacks sufficient financial knowledge and skills, leading them to seek professional assistance from CFPs.

 

Who Typically Seeks Financial Advice From CFPs?

 

Individuals with growing incomes and complex financial needs are one of the segments who seek financial planning advice. People approaching retirement who need investment and estate planning. Individuals facing major life events like inheritance or career changes, also feel the need for a financial planner. Finally, high-net-worth individuals seeking asset management and tax planning.

 

What To Look For When Selecting A Financial Planner

 

“While selecting a financial planner you should consider that he is comprehensive – not just talking about investment but also cover insurance, taxation, estate planning and also focus on your goals,” says Hemant Beniwal, certified financial planner and director at Ark Primary Advisors, a financial planning firm.

 

Further, the planner should be independent,  having his own firm or working for a trusted small firm. “People who are working with banks or bigger institutions are sometimes forced to do things that are not in the best interest of clients. Finally, he should be competent – a CFP is a great validation of competency,” says Beniwal.

 

It is even more important to make the right decision when choosing a financial planner because nowadays there are a lot of finfluencers dishing out financial advice, something without being adequately qualified to do so.

 

A few days ago Securities and Exchange Board of India (Sebi) took action against Zee Business guest experts who were allegedly making gains by taking opposite positions in the market compared to their on-air recommendations, which shows that financial advice may not always be unbiased.

 

In the context of financial planners, CFPs must act as fiduciaries, which means that they must act in the best interest of the client.

 

“Information and content is available in plenty. Recognizing the true essence of unbiased, unfiltered financial literacy done in the right manner and then having media share the information in the right manner is crucial to investor decision-making, protection, and growth of the industry,” says Dilshad Billimoria, a Sebi-registered investment advisor (RIA) and Managing Director and principal officer, Dilzer Consultants, a financial planning firm.

 

Hence it is crucial to exercise caution when it comes to finfluencers.” While they may offer financial advice, they often lack the expertise and regulatory oversight that CFPs adhere to. It’s important to verify their credibility and seek personalized advice from qualified financial planners,” says Menezes.

 

Source- Outlookindia

How surety bonds can be made at par with bank guarantees— explained

 

In a bid to make the surety bond business more attractive, the government is looking at making relevant changes in the Insolvency and Bankruptcy Code (IBC), PTI news reported. While presenting the Union Budget 2022-23, Finance Minister Nirmala Sitharaman said that the use of surety bonds as a substitute for bank guarantees will be made acceptable in government procurement.

 

 

What are surety bonds?

 

Surety bonds are third-party guarantees issued by the insurance companies on behalf of the applicant (i.e. on behalf of whom the guarantee is to be provided)

 

“Surety Bonds are issued to Beneficiaries and Authorities (i.e. corporations that accept the guarantee). Fundamentally, it is similar to any Non-Fund limits provided by banks to provide Bank Guarantees and LCs,” said Sanjay Kedia, CEO and Country Head, Marsh India Insurance Brokers.

 

Last week, IRDAI Chairman, Debasish Pandaurged stakeholders in the infrastructure sector to take advantage of offered surety bonds, which complement bank guarantees needed for large-scale funding.

 

 

Why Irdai chief stress the need to make use of surety bonds to complement bank guarantees?

 

IRDAI Chairman, Debasish Panda had mentioned that India is planning to spend almost 100 lakh crore+ on infrastructure in the next 5 years, which will generate a need for bonds worth almost 90 lakh crore in the next five years.

 

As per Sanjay Kedia, the current banking setup would urgently need additional support from alternative financing mechanisms to support such a demand for capital of this scale.

 

The IRDAI issued the Surety guidelines in 2022 which present a significant opportunity for Indian general insurers to complement the bank guarantee mechanism used by banks by providing alternative options for funding, he added.

 

Purpose of surety bonds

 

The purpose is to provide corporates an alternative for Non-Fund limits, which are more likely than not, uncollateralized and free of margin money/cash margins

 

As per Head, Marsh India, in some scenarios, the surety company can also provide a conditional guarantee, where the beneficiary is the private corporation and the chances of the unfair calling of the guarantee are minimised.

 

Benefits of surety bonds

 

Sanjay Kedia, CEO and Country Head, Marsh India listed four benefits of surety bonds

 

1)Diversified source of non-fund based limits

 

2)Easing of liquidity pressures

 

3)The ability for companies to participate in more orders

 

4)Project owners enjoy participation from a larger bidding group which helps them get a fair value for the bid

 

Source- Livemint

Budget 2024: Tax exemption deadline extended by one year for these categories

 

The interim budget has maintained the existing tax rates while extending income tax benefits by a year in three significant areas: startups, Indian branches of foreign banks located in GIFT City (Gandhinagar, Gujarat), and sovereign funds as well as foreign pension funds.

 

 

Startups

 

The tax exemption under Section 80-IAC has been extended until March 31, 2025, with a one-year extension.

 

Startups that have had a turnover of less than 100 crore in any of the preceding financial years qualify for a three-year tax holiday at any point within the initial ten years of their establishment. To be eligible, the startup must be registered as a private limited company or a partnership firm, or a limited liability partnership. Additionally, it should be actively engaged in innovation, development, or enhancement of products, processes, or services. Alternatively, it should demonstrate a scalable business model with significant potential for employment generation or wealth creation. Importantly, the startup should not have been formed by dividing or reconstructing an existing business.

 

 

Startups that were established on or before March 31, 2023, were entitled to a three-year tax holiday under Section 80-IAC of the Income Tax Act, 1961. The deadline for incorporation has now been extended by one year. Consequently, startups incorporated on or before March 31, 2025, are now eligible for this benefit. This extension creates a one-year opportunity for recently formed startups to take advantage of the tax relief, potentially fostering additional entrepreneurship and business development within the specified timeframe.

 

 

IFSCs

 

Tax exemption for International Financial Services Centre units under Sections 10(4D) and 10(4F) has been prolonged by one year, now applicable until March 31, 2025.

 

 

The role of the International Financial Services Centres Authority (IFSCA) is pivotal in the advancement of GIFT City as a prominent global financial hub. Established in 2020, IFSCA serves as the consolidated regulator for financial entities operating within GIFT City in Gandhinagar, Gujarat. Noteworthy tax benefits are extended to entities within the IFSC, including:

 

 

Derivative contracts issued by Foreign Portfolio Investors (FPIs) within GIFT City and overseen by the IFSCA are officially acknowledged as valid legal contracts. This legalization essentially permits the use of specific financial instruments, such as Participatory Notes (P-notes), allowing foreign investors to indirectly access Indian securities. The Indian branches of foreign banks situated in GIFT City are now authorized to utilize these Offshore Derivative Contracts (ODCs) for investments in the Indian stock market.

 

 

Entities in GIFT City qualify for a ten-year tax exemption out of a total of fifteen consecutive years. In the previous year’s budget, the period allowed for transferring funds from other countries into GIFT City was prolonged by two years. This time, it has been extended even further.

 

 

An equivalent one-year extension has been granted to airline leasing finance companies intending to relocate their base to GIFT City.

 

 

Sovereign wealth funds and pension funds

 

Tax exemption for Sovereign Wealth Funds and Pension Funds under Section 10(23FE) has been prolonged by one year, now applicable until March 31, 2025.

 

 

Sovereign wealth funds and pension funds (specified funds) are eligible for a tax exemption on the interests, profits, and dividends earned by their units in GIFT City from investments made between April 2020 and March 2024.

 

 

The tax exemption offered to sovereign wealth funds and pension funds in GIFT City serves as a compelling incentive to attract foreign investment. This tax relief has the potential to enhance GIFT City’s appeal to these funds, fostering greater foreign investment in India. This, in turn, can contribute to the growth of GIFT City as a global financial hub, positively impacting the Indian economy by promoting job creation and infrastructure development.

 

Source- Livemint

Tax-saving mutual funds and Section 80C: Why lock-in is good news

 

Despite 2023 being such a good year for equities and equity mutual funds, Equity-Linked Tax Savings Schemes (ELSS), or tax-saving mutual funds, got minuscule inflows. The Nifty Midcap index returned nearly 40 percent. The Nifty 100 Index returned nearly 18 percent. Mid-cap funds got a net inflow (more money came in than went out) of Rs 21,520 crore. Small-cap funds got net inflows of Rs 37,178 crore.

 

But ELSS got a net inflow of just Rs 3,773 crore in 2023. Presumably, the culprit is the 3-year lock-in that comes mandatory with all ELSS funds.

 

Curiously, many investors who dip their toes into equity markets come across acquaintances who sagely convey some variant of the following beliefs…

 

“Equities will only benefit you in case you hold them for several years”

 

“Time in the market trumps timing the market”

 

“Do not be perturbed by short-term stock market fluctuations… as these smoothen out over time”

 

“While investing, beware of greed and fear”.

 

Warren Buffett, that doyen of investing, has also alluded to the virtues of long-term investing when he quipped: “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years”.

 

It may also be an apt moment to recall Blaise Pascal, who remarked, “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”

 

So why are we suddenly recounting all these lessons?

 

Many of these investors say they ardently believe in long-term investing. However, they seem to be averse to walking the talk.

 

It seems that investors understand that needless activity in their portfolios is undesirable, and yet hesitate to invest in an option which helps them avoid such needless activity.

 

There are others, who are open to investing, but only up to the amount of income tax benefit available u/s 80C of the Income Tax Act, 1961, which currently is Rs 1.50 lakh. A distaste for ‘lock-in’ may result in investors under-investing in a scheme which may actually be suitable as well as beneficial to them.

 

This could result in a missed opportunity, especially if the ELSS in question has been performing well over the long term.

 

Viewing ELSS through the lens of its wealth creation potential (akin to that of any other non-ELSS equity scheme) may motivate us to think beyond the immediate income tax benefit which they confer.

 

I have noticed that these same investors unhesitatingly choose options with longer lock-ins so long as they are ‘safe’. This includes tax-saving Bank Fixed Deposits, Government Small Savings Schemes, etc. Many of these entail lock-ins of five or more years. Besides, the upside is fixed – as they usually offer a fixed rate of interest. Hence, the scope for wealth creation is limited.

 

Is too much transparency killing ELSS?

I have been dwelling on this paradox and I think that sometimes the transparency offered by markets and mutual funds may work against the tendency to remain inactive. Constant stimulus in the form of real-time prices, publication of Net Asset Values (NAVs) on a daily basis, talking heads on TV, social media influencers, etc, perpetuate the desire ‘to do something’.

 

Why lock-in helps

The Law of the Farm states that we cannot sow something today and reap it tomorrow. A realisation that all good things take time is the first step towards wealth creation.

 

The concept of investing broadly involves sacrificing spending today in order to accumulate wealth tomorrow.

 

Wealth accumulation involves two aspects

 

1) Consistent addition to the corpus

 

2) A continuous compounding of this corpus.

 

Compounding is interrupted if we constantly tinker with the process.

 

Lock-ins help ensure that we are constrained from doing so.

 

My suggestion is do not get repelled by the mandatory lock-in of three years, in an ELSS. “Lock In Accha Hai”.

 

Source- Moneycontrol

Key budget announcements in Modi 2.0’s last financial document you can’t miss

 

The interim budget for 2024-25 is being seen as an economic manifesto for Prime Minister Narendra Modi’s ruling Bharatiya Janata Party (BJP) and will give cues to the market on its plans for fiscal consolidation, borrowings and future taxation policy.

 

What India’s common man gets in Budget

 

Finance Minister Sitharaman outlined initiatives for the next five years, including increased housing, expanded access to free electricity, and enhanced medical care, especially for women. Sitharaman pledged support for key sectors targeted by Modi, such as farmers, youth, women, and the impoverished, as the country looks towards ‘unprecedented development’ in the next five years.

 

The government has this time decided to widen the horizon of housing scheme. It will be launching the ‘Housing for Middle Class’ scheme to encourage middle-class individuals to purchase or construct their own homes. Over two crore additional houses have been added to the existing target of three crore under PM Awas Yojana.

 

The government has also decided to accelerate Saksham Anganwadi and Poshan 2.0 programs to enhance nutrition delivery, early childhood care, and development, said Sitharaman.

 

Sitharaman said that the government has enabling one crore households for rooftop solarization, providing up to 300 units of free electricity per month.

 

What Indian industries received

 

Sitharaman’s interim budget unfolded a series of impactful measures set to provide a robust impetus to various sectors, fostering economic growth and development across the nation.

 

Giving a thrust to the Production-Linked Incentive (PLI) scheme, the government allocated Rs 6,200 crore to incentivize manufacturing and boost industrial output. To stimulate the tourism sector, projects for port connectivity, infrastructure, and amenities on India’s islands, including Lakshadweep, are in the pipeline. Budget 2024 also focused on expanding railway corridors and increasing the number of Vande Bharat trains in India.

 

A comprehensive program for supporting dairy farmers is on the horizon, building on the success of existing schemes. Efforts to control foot and mouth disease and increase the productivity of milch-animals align with the goal of fortifying India’s position as the world’s largest milk producer.

 

The agriculture sector witnessed a strategy for self-reliance in oilseeds production. The adoption and expansion of Nano Urea and Nano DAP applications on crops was also announced.

 

In the defence sector, a new scheme will be launched for strengthening deep-tech technology. Allocation for defence in the interim budget has been increased to Rs 6.21 lakh crores for the financial year 2024-25 from Rs 5.94 lakh crores allocated for the last year. The increase is over 4.5 per cent from last year.

 

Expanding healthcare coverage under the Ayushman Bharat scheme to ASHA workers, Anganwadi Workers, and Helpers is a significant step towards ensuring a more inclusive and comprehensive healthcare system. The vaccination initiative for cervical cancer has also been announced.

 

The extension of the RoSCTL scheme for the apparel industry until March 31, 2026, provides stability and incentive for long-term planning.

 

With a remarkable increase in the capital expenditure outlay, the focus on infrastructure development is evident. The capex allocation stood at Rs 11.11 lakh crore for the next year.

 

Taxes and more

 

The interim budget had no significant announcements regarding the income tax slabs for the upcoming financial year, 2024-25.

 

Under the income tax laws, an individual (not having any business income) is required to choose between the new and old tax regimes every year. Hence, an individual can choose the new tax regime one year and the old tax regime the next.

 

Contrary to this year, a large number of changes were made in Budget 2023 in the new tax regime. The income tax slab changes announced in Budget 2023 are effective for the financial year between April 1, 2023, and March 31, 2024, and are set to remain unchanged for FY 2024-25 (April 1, 2024 and March 31, 2025).

 

The budget has provided insights into the party’s strategies for fiscal consolidation, borrowing, and forthcoming taxation policies, offering valuable clues to the market.

 

However, the Sitharaman has announced an income tax amnesty for taxpayers having outstanding direct tax demand disputes with the income tax department. As per the announcement, outstanding direct tax demands up to Rs 25,000 till financial year (FY) 2009-10 and up to Rs 10,000 between FY 2010-11 and FY 2014-15 will be withdrawn.

 

In layman terms, this means that taxpayers having pending tax demand disputes up to the limit announced for the specified financial years would be eligible for this benefit.

 

Allocations to major schemes

 

 

  • Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA): Allocation hiked to Rs 86,000 crore for FY25 from Rs 60,000 in FY24, a 43.33 per cent increase.

 

  • Ayushman Bharat-PMJAY: Allocation hiked to Rs 7,500 crore for FY25 from Rs 7,200 crore in FY24, a 4.2 per cent increase.

 

  • Production Linked Incentive Scheme (PLI): Allocation hiked to Rs 6,200 crore for FY25 from Rs 4,645 crore in FY24, a 33.48 per cent increase.

 

  • Modified Programme for Development of Semiconductors and Display Manufacturing Ecosystem: FY25 allocation hiked to Rs 6,903 crore from Rs 3,000 crore in FY24, a 130 per cent hike.

 

  • Solar power (GRID): FY25 budget estimate hiked to Rs 8,500 crore from Rs 4,970 crore in FY24, a 71 per cent increase.

 

  • National Green Hydrogen Mission: Allocation for FY25 hiked to Rs 600 crore from Rs 297 crore in FY24, an increase of 102 per cent increase

 

Source- Economictimes

Over 75% of PMS funds deliver excess returns than mutual funds: Report

 

While PMS is meant for high-net-worth individuals (HNIs) and mutual funds are accessible to all investors, an analysis of their return profiles shows that over 75% of PMS approaches have given excess returns than mutual funds over 10 years.

 

PMS Bazaar analyzed 335 PMS investment approaches and 388 regular mutual funds across 1, 3, 5, and 10-year periods and found that PMS investment approaches outperformed their benchmarks by an impressive 70% on average across all timeframes and categories, while MFs managed a respectable 48%.

 

“Interestingly, when comparing PMS to mutual funds, PMS investment approaches consistently outperformed mutual funds across all timeframes. For example, in the 5 years, 59% of PMS investment approaches outperformed their benchmarks compared to just 46% of mutual funds. This trend continued in the 3-year and 10-year periods, with PMS consistently delivering superior benchmark-beating returns,” the study said.

 

During the 3-year window, barring the thematic category, PMS outperformed benchmark and mutual funds across all the categories. The PMS smallcap approaches thrived, exceeding the benchmark by a whopping 91% compared to mutual funds’ 41%. Midcap PMS also shone, surpassing the benchmark by 84% compared to just 17% of mutual funds. Similar dominance was seen in the large, large-mid, multi, and flexi cap categories in the 3-year timeframe, it said.

 

PMS schemes are meant for HNIs to park surplus capital as it comes with a minimum ticket size of Rs 50 lakh, while mutual fund investing begins as low as Rs 100.

 

PMS vs direct mutual funds

 

In the one-year period, PMS led with 86% outperformance compared to 60% for direct funds. But in the three-year period, both PMS and direct funds outperformed benchmarks by 58%. On the other hand, during the five-year period, direct mutual funds took the lead with 62% outperformance, while PMS lagged at 59%. And in the long-term 10 years, PMS emerged as the winner, boasting 79% outperformance against 65% for direct funds and the benchmark.

 

Top PMS funds


In the last year, Invasset Growth Pro Max Fund is the top gainer with a 96.6% return, followed by Aequitas’ India Opportunities Product and Shephard’s Value Magno. On a 3-year timeframe, top gainers are Counter Cyclical’s Diversified Long Term Fund, Green Lantern’s Growth Fund, and Aequitas’ India Opportunities Product, shows PMS Bazaar data.

 

In the last 5 years, Green Lantern’s Growth Fund, Bonanza’s Edge, and Sameeksha’s India Equity Fund have performed well while the 10-year map shows Aequitas’ India Opportunities Product, Nine Rivers’ Aurun Small Cap Fund and Globe Capital’s Value Fund as top winners.

 

Source- Economictimes