5 mantras for a secure financial future …...mutual funds, you should also know the different taxes...

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The month of March marks the end of the fi scal year. Some of you may feel that you have not done enough to save Taxes. You all want to get your fi nances right. A realisation to do so is a good beginning. The month of March is just about the right time to look forward to the new fi nancial year with hope and better planning ideas.

5 MANTRAS FOR A SECURE FINANCIAL FUTURE


WHAT NEXT?

When you invest in Mutual Funds, you should

also know the different Taxes that are levied on your returns. Find out all about the

various Taxes applicable to your investments in

the next section!

MANTRA 1: Analyse your FinancesTo form a long-term friendship with your fi nances, you need to know your fi nances well. By analysing your fi nances, you get a clear picture of your capacity to fulfi l fi nancial goals, your saving and spending habits.TIP: Record your every expense. Analyse your expenditures. Make a list of items, before going

shopping, stick to it.

EFFECT OF MANTRA 1: “I know, my capacity to save, invest

and spend.”

MANTRA 2: Seek fi nancial adviceFinancial Advisers can help you make the right investment decision, at the right moment. Seeking fi nancial advice can also help you overcome investment biases and bust myths.TIP: Seek fi nancial advice before investing.EFFECT OF MANTRA 2: “I know, I am going in the right direction to reach my fi nancial goals.”

MANTRA 3: Plan your Taxes earlyBy planning your Taxes soon, you can integrate your Tax saving goal with various other fi nancial goals. That can be done quickly with the help of ELSS (Equity Linked Savings Scheme). However, you might miss this chance by planning your Taxes at the last moment.TIP: Plan your Taxes early. Divide your Tax saving amount into 12 SIPs (Systematic Investment Plans).EFFECT OF MANTRA 3: “I am having a stress-free fi nancial year-end. I’m not only saving Taxes, but also accomplishing my goals.”

MANTRA 4: Invest in Mutual FundsMutual Funds offer a plethora of Schemes. Each scheme is designed to fulfi l specifi c fi nancial goals. You can choose Funds that suit your risk profi le. In addition to returns, Mutual Funds also offer many benefi ts like rupee cost averaging, compounding, investment discipline and risk diversifi cation.TIP: Have a separate portfolio for each of your goals.EFFECT OF MANTRA 4: “I don’t have to worry about uncertainties like infl ation. Mutual Funds are like an umbrella that protects my money during rainy days.”

MANTRA 5: Review your PortfolioMarkets and government policies keep changing, from time to time. It would be best if you were sure that you are making appropriate investments to reach your goals. Therefore, you should regularly review your portfolio.TIP: Consult a fi nancial Adviser, if you are unaware of when and how to review your portfolio.EFFECT OF MANTRA 5: “I can fulfi l my fi nancial goals easily. I feel fi nancially secure now.”

Here are fi ve fi nancial

mantras that you may follow in the

new fi nancial year:

Humans usually rely on their working or short-term memory while making decisions. For example - To walk yourself to the offi ce, you have recently switched from path A to path B. You stick to path B for a while until you are late one day and you have to opt for the fastest route to make it to the offi ce on time. You have two options, path A and B. Even though both route takes the same time, you unintentionally choose path B because you rely on your working memory which says that path B is probably the fastest between the two. That is called Recency Bias.

Recency Bias also infl uences your investment decision. For example, during a market boom, we tend to go with the momentum. We often forget about past slumps. That usually makes us believe that the value of assets in your Funds will keep on appreciating.

SWATANTRA KUMAR EXPLAINS: RECENCY BIASHere are a few tips,

to avoid recency bias while making

investments:3. Think long-term. Have a

long-term investment strategy.

2. However, remember that past performance is only an indicator.

4. Review your investments according to your Fund’s performance, from time-to-time.

1. Do suffi cient research about the past performance of the Fund before investing.

WHAT ARE THE DIFFERENT TAXES APPLICABLE TO

MUTUAL FUNDS?When you invest through Mutual Funds, you can earn income as Dividends or Capital Gains. Also,

where there is income, there is Income Tax. Moreover, since March is the month of (last minute) Tax planning, let’s discuss the different Taxes that apply to your Mutual Fund investments.

a) Dividend Distribution Tax

Dividend Distribution Tax (DDT) is a Tax levied on Dividend-paying Mutual Funds. The Fund House deducts this Tax before they pay out the Dividend. That means you don’t have to pay any extra Tax. Only your actual returns would reduce as a result of DDT.DDT on non-Equity Funds: 25% (29.12% including surcharge and cess)DDT on Equity Funds: 10% (11.648% including surcharge and cess)

b) Capital Gains TaxThe Capital Gains you earn on

your Mutual Fund investments are taxed based on the holding period of your Mutual Fund units. That can either be short-term or long-term. Moreover, based on this timeframe, you have to either pay:Short-Term Capital Gains Tax (STCG)Long-Term Capital Gains Tax (LTCG)

Fund Short-Term Long-TermEquity Funds Less than 12 months 12 months or moreBalanced Funds Less than 12 months 12 months or moreDebt Funds Less than 36 months 36 months or more

That means, if you hold your Equity Funds for more than 12 months, you would have to pay LTCG Tax. On the other hand, LTCG Tax on Debt Funds is applicable only if you held your Funds for more than 36 months.

c) Securities Transaction TaxSecurities Transaction Tax (STT) is a Tax

levied on the purchase and sale of securities that are listed on the Stock Exchanges. So, whenever you sell an Equity Fund or a Hybrid Equity Fund, you also have to pay STT. That gets deducted at the rate of 0.001% months.

MF


4. Start an NPS● With NPS investments, you can claim

an additional Tax benefi t of `50,000. That is over and above your `1.5 Lakh Tax saving investment.

You may fi nd yourself doing things at the last minute even if you do not wish to. You learn about the adrenaline rush of fi nishing your jobs at the last minute at a young age. When it comes to investing, this can pose challenges.

Here are a few

last-minute Tax

saving tips:

returns. Find out all about the

You may fi nd yourself doing things at the last minute even if you do not wish to. You learn about the adrenaline rush of fi nishing your jobs at the last minute at a young age. When it comes to investing, this can pose challenges.

Here are a few

last-minute Tax

saving tips: LAST-MINUTE TAX PLANNING TI

PS

1. Analyse the situation ● Have you correctly calculated your

payable Tax?

● Have you taken advantage of all the deductions under Section 80C?

● Have you invested in NPS (National Pension System)?

● Are you covered under an insurance scheme?

● Do you have your HRA (House Rent Allowance), LTA (Leave Travel Allowance) and other Tax-related document proofs in place?

2. Seek Financial Advice● After you have calculated

your Tax payable for the current fi nancial year, don’t just rush to invest.

● Consult a Financial Adviser to align your Tax planning goal with your other medium-term and long-term goals.

● Your Tax planning investment can become your high return investment.

3. Start a SIP● Mutual Funds can

give returns over and above infl ation.

● Start a goal-based SIP of `1.5 Lakh.

● You can change your SIP amount later without any penalty.

● After you are done with the current fi nancial year’s Tax saving, continue with your SIP.

● For the next fi scal year, you can divide your SIP of `1.5 Lakh into 12 or more SIPs.

LALAL SASA TSTS -MIN

It’s never too late to get started with Tax planning goals, start your SIP now!

SIP CAN BE YOUR

ALL-SEASON TAX BUDDY!

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5 mantras for a secure financial future …...mutual funds, you should also know the different taxes...

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