Zero risk tool for Tax saving ... + Wealth Creation Tips to beat inflation

Basics of the PPF (Public Provident Fund) : Here we look at how PPF must be viewed in conjunction with your portfolio. 

It has the potential to give exponential returns over time, but it requires patience. Also, the larger the amount you invest, the greater the impact of compounding. 

After all, 7% on Rs 1,50,000 gives you much more than 7% on Rs 500. Now look at this cumulative impact over 15 years.

 

1) Let compounding work for you.

Though the PPF has a duration of 15 years, the first year is not taken into consideration when looking at the maturity of the account. The end of the financial year in which the deposit was made is what matters. So, if you opened the account on September 15, 2020, the 15-year tenure will commence from the end of FY2020-21 (March 31, 2021). That means it would have matured on March 31, 2036. Let’s say you invested Rs 1.50 lakh on September 15, 2020 and since then, Rs 1.50 lakh every single financial year on April 1. Over these 16 years, you would have invested Rs 24 lakh. At present on a return of approx. 7% per annum, it would amount to over Rs 49 lakh on maturity.  

This entire lumpsum is tax free. All the interest earned is also tax free. 

This forced saving (mandatory amount every year ranging from Rs 500 to Rs 1,50,000) makes it an excellent long-term savings tool. This tool is used for my retirement savings. If you have a little child, maybe you can position it as a savings for the child’s higher education. Whatever be the goal, have a long-term perspective in mind.

 

2) Make it work in your favour.

The money in your PPF account is compounded annually and credited to your account at the end of the financial year. The interest is computed monthly. It is calculated on the lowest amount between the 5th of the month, and the last day of the month. So to let the principle of compounding work on your behalf, deposit the entire amount – Rs 1.50 lakh before the fifth of April, every single year. Of course, the exact amount you will invest is a personal choice. If you are not able to afford a lump-sum, the PPF allows you to invest in installments. Try and put your money before the 5th of the month.

 

3) Use it as part of your debt allocation.

Over the weekend, a family member informed me that the cumulative amount in the PPF accounts of her and her husband totaled around Rs 80 lakh. She was really happy about it. This is a couple who does not understand debt funds but was looking for a safe, long-term fixed return investment. They decided to opt for this PPF. They also decided to extend it on maturity till they really needed the money post retirement. A colleague who is a fund analyst told me that the PPF has no place in his portfolio because the debt allocation is taken care of by debt mutual funds. He has various other ways of reaching the Section 80C limit of Rs 1,50,000 (interest paid on home loan, tuition fees of children, life insurance premium and contribution to Employee Provident Fund). On the other hand, though I invest in debt funds, I use the PPF as part of my debt asset allocation and invest in it every single year.

 

4) Be objective.

It may not be for you. If you are contributing to EPF and VPF, you could bypass the PPF. A friend of mine, who is a government employee. He said that by 2040, he should have Rs 1.2 crore in his General Provident Fund and Rs 20 lakh as gratuity. He will also be getting a pension of Rs 80,000 per month. In his case, a PPF would not help but investing in an equity linked savings scheme, or

 

ELSS, would be a better tax investment

 

Let us take a case of a consultant/entrepreneur : In his entire career spanning 22 years, only three were as a salaried individual. For him, cash flow was not a given, as it would be in the case of an individual earning a monthly salary. He saw no point in locking up money for an extremely long duration which could not be easily accessed. Another investor pointed out that PPF made sense at one point in his life. But now his contribution to the EPF and VPF and insurance premiums have enabled him to max the Section 80C limit. So once the account matured, he opted out of it. When I asked some of my colleagues if they have a PPF account, almost all who I approached admitted to having one, though their levels of enthusiasm and commitment to parking Rs 1.5 lakh per annum were mixed. I view PPF as a great debt product which is high on safety and super tax benefits. 

Think about it, putting away money for 15 years with a guaranteed return that is tax-free and risk-free. Who would not want to opt for it? But being a great product does not imply that it is a natural fit in any portfolio. Does it find a strategic place in your portfolio? Does it fit in with your financial plan? 

If yes, Go for it. 

 

For Investing in ELSS, Open your E-Wealth account in few steps. Do It Yourself.

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Dozen most common tax saving mistakes. Must read

It's Financial year end ... March approaching. ..Don't commit these Tax saving mistakes however tempting.. Be financially literate.

You are trying to save tax at last moment. An Insurance Agent in the guise of investment advisor calls you, asks for appointment. You are in last minute hurry.... You listen to him/her shortly and handover a cheque immediately.

The less tax you pay, the more disposable income in your hands. That is good enough reason to take your tax saving exercise seriously. But all too often, it is a mad rush to meet our March 31 deadline. And in doing so, we make some grievous errors by padding our portfolio with investments that could be well avoided.

Here’s how to sidestep that trap laid by cunning insurance advisors. Remember this is a landmine.

1.  Not exhausting all the tax saving avenues.  

The investments in Public Provident Fund (PPF), National Savings Certificate (NSC), 5-year fixed deposits with the bank or post office, Equity Linked Savings Schemes (ELSS), Senior Citizen Savings Scheme (SCSS), National Pension Scheme (NPS), and Sukanya Samriddhi (specifically for the girl child) all fall under Section 80C. Certain expenses also fall under this section. Do cover all in your checklist.

Do not forget that you get a benefit when you pay rent. Also, interest paid on home loans qualify.

Look at Section 80CCC (included under the Section 80C limit), which includes the money spent on the purchase of a new policy or payments made towards renewal or continuation of an existing policy. The primary condition for availing this exemption is that the policy for which the money has been spent must be providing a pension or a periodical annuity.

Section 80D allows a deduction up to Rs 25,000 for medical insurance premium installments. The premium should be for you, your spouse, and dependent children.

2. One product approach

If one looks at tax saving as a cumbersome exercise to be gotten rid of at the end of the financial year, then there is a high likelihood of investing the entire eligible amount in one investment vehicle without considering one’s financial goals and risk appetite.

3. Section 80C is only about investing 

Section 80C allows you to claim a deduction of up to Rs 1.5 lakh of your total income under this section. In simple terms, you can reduce up to Rs 1,50,000 from your total taxable income.

All the investments mentioned above fall under this umbrella.

But Section 80C also includes tax-deductible expenses. Payment of life insurance premium and tuition fees for children are two expenses you must look at. The third expense is the repayment of the principal amount of a home loan. This deduction is also applicable on stamp duty, registration fees and transfer expenses. 

4. Insurance premium up to Rs 1.50 lakh can be claimed as a deduction.

The annual premium paid for life insurance is available for a deduction ONLY if the policy is in the name of:

• Taxpayer
• Taxpayer’s spouse
• Taxpayer’s children

The limit for the deduction is restricted to 20% of capital sum assured in respect of policies issued on or before March 31, 2012, and 10% in case of policies issued on or after April 1, 2012.

In case of policies taken on or after April 1, 2013, in the name of any person suffering from a disability or severe disability referred to in section 80U or suffering from disease or ailment as given in section 80DDB, the limit will be 15% of capital sum assured. Read more on this on the Income Tax website.

5. Buying endowment insurance plans

Endowment plans are a mix insurance and investment and tend to be costlier than term plans. Further, returns on endowment policies are low and cost structure relatively less transparent which undermines its utility as an investment vehicle. Since it’s a bundled product, insurance cover provided by it is lower and results in inadequate cover. Instead, it is advisable to buy term insurance with adequate coverage considering your age, income, dependents and existing wealth.

Investing too much in endowment plans : When you walk in to a Bank or ask your insurance agent for tax saving schemes they always recommend endowment life insurance plans since they earn highest commission @ 35% of first year premium and 5% on subsequent year premiums, hence they tend to convince you by hook or crook as if they are the only well wishers of you in the world. 

6. Lack of awareness about multi-year commitments

Certain products like ULIPs, endowment insurance plans etc involve multi-year commitments. Any failure to pay premiums in subsequent years results in revocation of the policy. Investors, at times, are unaware about this aspect. 

Note: These plans are of very long term usually in the range of 10 to 20 years hence you need to keep investing. If you redeem or fail to pay regular premium you are doomed. You will not even get your initial investment back. It is Win - Loose situation. Because if you redeem or lapse policy Company will be in profit.. Agent will be in profit.. A classic example - most of the insurance companies have thousands of lapsed policies. Ultimately the remaining amount is appropriated in their profits after mandatory period. Hence they are least bothered about follow up with custmer, besides formal reminders.

Even if you pay premiums religiously, till policy term. At maturity average returns will not be more than 6% to 7%

7. All tuition fees are permitted.

When the word tuition is used, it is the fee paid for a full-time course to any school, college, university or educational institute situated in India. It is not private, out-of-school tuition. Neither is it for fees paid abroad. The caveat being that it is limited to two children only.

8. Tax-saving investments are a must.

NO.

• First, look at the expenses permitted under Section 80C: principal home loans payments, life insurance premiums and children’s tuition fees.
• If you have not maxed the Rs 1.50 lakh limit with the above payments, then move on to check your provident fund contribution under EPF.
• Only if you still have not hit the Rs 1.50 lakh limit under Section 80C, should you consider any other investment (such as PPF, NSC, ELSS or 5-year bank deposits) to save tax.

Contributions to the Employee Provident Fund (EPF) are covered under the Section 80C limit. This is a retirement benefit scheme that is available to salaried employees; 12% of basic salary is deducted by an employer and deposited in the EPF. Your provident fund contribution accumulated over the current financial year itself might add up to a sizeable amount.

This is all the more relevant in the case of Voluntary Provident Fund (VPF). Here, the contributor decides on the amount of fixed contribution that is made towards the scheme on a monthly basis. Under the VPF, employees are allowed to make contributions towards their provident fund account on a voluntary basis. The scheme does not include the mandatory 12% that the employee makes towards the EPF.

9. Tax saving is about fixed-return instruments.

The SCSS, 5-year bank deposits, NSC and PPF are all fixed-return investments. But under the tax-saving umbrella, there are also ULIPs, ELSS, and the NPS, all of which provide an equity exposure.

This is why you must always approach tax planning from the perspective of your overall portfolio. Your personal tax strategy will have a different meaning and emphasis depending upon your circumstances and risk capability. For instance, if your portfolio is heavily tilted towards fixed income instruments, it would not be wise to opt for an investment in NSC. 

10. Shying away from equity

Ignoring lock-in period : Investments in ULIPs, PPF, endowment policies have longer lock in period as compared to ELSS. Ignoring lock in period of tax saving investments can throw your financial plan into disarray

Thinking solely about tax saving without thinking about wealth creation : Tax-saving investments which save tax and have an element of investment are supposed to create wealth. As simple as this statement may sound, this fact is lost on most investors, which they should be mindful.

Although equities are volatile in short term, they yield higher returns in the long term and outperform other asset classes. Shying away from equities hampers your ability to generate adequate wealth in the long run. Since ELSS returns are impacted by volatility in equities, it is advisable to invest in ELSS (Equity Linked Saving Scheme) through the SIP route to benefit from rupee cost averaging. So, consider an ELSS.

for this open E-Wealth Account

 

11. Viewing tax planning in isolation.

Good tax management (saving and investing) can go a long way toward enhancing your return. But the decision needs to be made in conjunction with your overall portfolio and not in an ad-hoc fashion.

Most individuals rarely think about tax planning from an investment point of view. Hence one finds that they do not approach an investment with a perspective of whether or not it fits in with their overall portfolio. The approach is often just grabbing up investments that will give them the tax break, irrespective of whether or not it will help them reach their determined financial goals or fit into an overall investment strategy.

As a result, it is not surprising to see portfolios heavily skewed towards ULIPs or endowment plans. Or probably packed with NSC, in addition to their EPF and PPF. Tax planning investments are no different from conventional investments. Hence, it is imperative to obtain an in-depth understanding of all investment avenues available which offer tax benefits and choose suitable ones that will help save tax and achieve goals.

• When selling an investment, ask: What are the tax consequences?
• When buying an investment, ask: What are the portfolio consequences/impact of this current addition? 
  

Not thinking beyond 80C : Apart from 80C, there are other sections like Section 80D (Mediclaim), Section 80G (Donations to charitable organization), and Section 80CCD (National Pension Scheme), which taxpayers are usually unaware of. They should, therefore, try to make the most of them to save tax.

While you may have missed the bus when it comes to planning your tax-saving investments in advance for this financial year, you can certainly avoid these common mistakes by putting some thought into this and avoid regrettable investing decisions

12. Tax saving is a last minute exercise.

If you are doing your tax planning now, this is a mistake you have already made. Do rectify this going ahead.

You should invest in PPF at the very start of the financial year to avail of the benefit of compounding. If investing in an ELSS, it is wise to do so via a systematic investment plan (SIP) from April onwards. Do remember that SIPs are implemented for a minimum of 6 months or 12 months (though you can terminate it anytime).

You are most prone to making the wrong investment when it is done in a tearing hurry, with the March 31 deadline looming menacingly. Plan. If you want your money to work towards one goal, which is creating wealth, ensure that you approach it in an orderly fashion.

Your investment plan must be proactive, not reactive. By this I mean that tax saving should be in sync with the overall strategy and not a hurried exercise at the fag end of the financial year, where you pick up anything simply because you don’t know what else to do. Tax optimisation of individual financial products has to be the last step in the overall financial plan and not the basis for selection.

Using contingency funds for tax-saving investments : The last-minute investments to save taxes put pressure on the finances of many individuals, especially those who have just started their career. In an effort to make the most of tax deductions, people commit a cardinal mistake of using their contingency funds for this purpose.

From Next Financial year start it from April itself. Buy Life insurance for Protection not for saving Tax.

For this start SIP in ELSS for long term and create wealth along-with tax saving.

 Visit and open E-Wealth Account today.

 Leave doubts in comment box.

Science and Art of reading Balance Sheet

 

EVER so often, I have been posed the question, "How does one go about reading a balance sheet"? The answer could be as easy or as complicated as the answer to "How do you drive an automobile?"

 

As in the case of driving, there is a learning process which incorporates some basic know how....in much the same way, a certain know how is involved in analysing a balance sheet.

 

However beyond a point it is a question of developing one's own style and approach to analysing a balance sheet.This attempt (or any attempt for that matter) to enumerate the steps involved in reading a balance sheet can only initiate a novice into the process. 

 

Beyond a point every reader would have to evolve his own style and approach much as a driver of an automobile (once he has gone beyond the stage of Successfully putting the automobile into motion and controlling it) soon develops his own "touch". 

Fusion of science and art

Reading a balance sheet is a science and an art and the dexterous reader is one who blends the two well. Undue reliance on the textbook and measurement approach could lead to the same judgmental erors that statisticians find so irksome: the spurious co-relation (Research over the last twenty years indicate a positive co-relation between the fertility of tribal women in Papua New Guinea and rainfall in the hilly

regions of Haiti). On the other hand, an approach which ignores the ratios and measurements and

relies only on reading "in between the lines" is like playing a game of poker without looking at one's cards.

Anatomy and dissection of a Balance Sheet

1. Notice of AGM :

The discerning reader would look closely at the "explanatory statements to the special resolutions that are sought to be passed at the AGM. Largely, the explanatory statements are drafted in non-legal language giving the rationale or background to special resolution(s) sought to be passed at the AGM.

 

Cues

- Look out for anything out of the ordinary in the explanatory statement since this is an area where far reaching changes are often couched.

2. Director's report :

This is the management's encapsulation of the company's performance for the year/period under review. The Director's report is comprised of the issues that the report is statutorily required to cover such as answers to the qualifications made by the auditors in their report, the report on technology absorption,

recommendation of dividend payout, retirement and proposed appointment of Directors and Auditors, a separate statement on the salaries, age, qualification and previous employment of employees drawing remuneration above a certain amount etc.

 

Cues

* A proper reading of the Directors report will set the "mood" to the analysis of the balance sheet.

* A lot of inferences can be drawn on the ethos and the values of the company' management from the

non-statutory areas covered by the Directors report. A report that sticks to the bare statutory issues is

also reflective of the management's attitude to its shareholders.

* There is more than meets the eye in the case of Auditors retiring at the AGM and not seeking re-appointment.(I have yet to come across an Auditor who is in the retirement business).

* Look out for changes in directors. These could be the first signals of a management shift.

3. Statement of sources and application of funds (the Balance sheet) :

In the good old days there was in voguc the "Horizontal Form" of the Balance sheet with the. right

handside depicting the assets of the company (now application of funds) and the left hand side the

liabilities (now sources of funds). The excess of the assets over the liabilities represented the shareholder's funds (net worth).

 

Cues

* Net worth - this basically indicates the size of the company in terms of the wealth that jt owns

"Reserves to Equity" ratio which indicates the inherent "Reserves: Strength of the company. However

"revaluation resources" and "share premium which are not in the nature of "earnings ploughed back"

need to be excluded.

* Debt/Equity ratio: A very high or a very low Debt/Equity ratio are both not very positive indicators. Ahigh Debt/Equity ratio, (say beyond 1:5 for most industries) would signify heavy borrowings which would then need to be analysed in respect of the uses of the borrowed funds- Has the money gone to fund losses, to fund working capital or to build assets?

* A very low gearing (Debt/Equity ratio) could indicate either a very passive management which is not making the shareholders funds work hard enough or could indicate a situation where costly Equity funds have been used, in lieu of cheaper Debt funds to fund the company's business which once again would not be very "healthy for the company in the long run.

* Quick ratio: Current Assets (except loans and advances)/current liabilities (except tax provision). This ratiodoes remain one of the important indicators of the short term solvency and liquidity of the company.

* Fixed assets: Look out for hidden resources say, in the form of Land/Building not currently in use by the company (say residential premises) where the book value is substantially below the current market value. Likewise watch out for intangible assets such as Goodwill and assets taken on Hire Purchase which are, strictly speaking not owned by the company, as yet.

* Investments : In case of investments in quoted instruments, the difference between the market value and the book value would represent hidden profit/losses which need to be considered.

* Loans and advances: Large loans given to group companies or subsidiaries etc. could indicate diversion of company's funds into uses which may not be generating suitable returns.

* Miscellaneous expenditure (to the extent not written off or adjusted): This head is increasingly

becoming the favorite playground for the creative accountant where expenses with debatable future 

value (such as launch advertising or research expenses) are parked.

 

Hence this head would also merit closer scrutiny by astute balance sheet readers.

4. Notes to accounts

This most ignored and "skipped over part of the Balance Sheet is often the most interesting. Within the notes to accounts, there are the mandatory areas" which has to be covered as also the special elucidations/qualifications to the accounts that the management deems necessary.

The Art of reading a Balance Sheet

Having come to grips with the science, it is now the time for the reader to graduate to the Art. This is largely a function of time and "Balance Sheet Hours" (like "Flying Hours"). It is the art of reading in between the lines, the art of juxtaposing a comment here with a figure there and inferring the "Big Picture", the art of developing industry perspectives thereby adding much more meaning to the Balance Sheet figures and so on and so forth.

 

It is the art developing your own "Golden Rules to reading a Balance Sheet".

 

Here are some:

- Reading Balance Sheets is all about reading the unwritten.

- Other things being equal, favour the Balance Sheet with the least number of colour photographs.

- A Balance Sheet which fails to conjure up an image of the Company has failed to make its point.

- Be wary of Balance Sheets with blown up photographs of Directors and Presidents; it does reflect a bloated Corporate ego.

- A Balance Sheet is a Historical Document; one cannot see the Future through a rear view mirror.

- A Abridged Balance Sheet to a savvy reader is what the game of "Cut Throat" is to a Bridge Player.

 

To cap up this piece here's an experiment conducted in 90's by a Swedish Tabloid (and as reported in an issue of TIME Magazine)):

Five leading analyst were given S 16,000 each and a one eyed chimpanzee was given five darts to stick on a list of companies. Two months down the line the chimp's picks made a profit of $ 270 against $ 240 of his closest human rival.

 

So apart from attempting to read Balance Sheets, do eat more bananas and close one eye while throwing dart.

२ मिनिटात वाचा.. समृद्ध आयुष्य व लक्ष्मी कृपेसाठी ५ उपाय....

दिवाळी हा आहे वर्षाचा सगळ्यात मोठा सण उत्साह, आनंद देणारा आणि त्यात येणारे लक्ष्मीपूजन... दिवाळीच्या लक्ष्मी पूजनाच्या निमित्ताने काही अत्यंत प्रभावी लक्ष्मी प्राप्तीचे सहज सोपे उपाय..... नक्की वाचा 

श्री लक्ष्मी माता म्हणजे वैभव, ऐश्वर्य, सुख ,शांती, समाधान ,आनंद ,प्रेम ,सर्व  सुख देणारी माता... आणि हेच आपल्या आयुष्यातला वास्तव... क्षीरसमुद्र कन्या व श्री विष्णूंची पत्नी श्री लक्ष्मी माता समुद्रमंथनातून प्रकट झाली आहे त्यामुळे पाणी आणि लक्ष्मी माता यांचा विशेष संबंध आहे. हेच पाणी लक्ष्मी प्राप्तीसाठी कसे उपयुक्त ठरते ते आता आपण पाहू.. 

१. सर्वप्रथम घरातील गळके नळ बंद करावे.-

जर घरात नळ गळत असतील त्यामुळे लक्ष्मी मातेची कृपा आपल्यावर होत नाही थोडक्यात लहान लहान खर्चातून पैसा वाया जातो त्यामुळे घरातील गळके नळ त्वरित ठीक करून घ्यावेत.

२.साठवणीचे पाणी गरजेपुरते साठवावे.- 

जास्तीचं पाणी आपण बऱ्याच वेळा वाया घालवतो ओतून देतो असं केल्याने अचानक धनाचा व्यय होतो त्यासाठी जास्तीचं पाणी  घरच्या गरजांना वापरावे जसे कपडे धुण्यासाठी ,भांडी घासण्यासाठी, झाडांसाठी ज्यामुळे अचानक उद्भवणारे खर्च थांबतील.

त्याचबरोबर पाण्याचा साठा जसे माठ, पाण्याचे पिंप, हंडा ,कळशी इत्यादी च्या बाजूला दिवा लावावा ज्यामुळे ते पाणी आरोग्यदायी होते.

३. पाणी भरताना "ओम नमो भगवते वासुदेवाय नमः" हा मंत्र म्हणावा.- 

जिथे श्री विष्णू वासुदेव तिथे लक्ष्मी मातेचा वास असतो त्यामुळे  असे केल्याने  आपणास  लक्ष्मी मातेची  कृपा लाभते. 

४. आपण जेव्हा पाणी पिण्यासाठी घेतो त्यावेळेस पाणी पूर्ण प्यावे अर्धे ठेवू नये.-

ग्लास, बाटली, तांब्या कशातूनही पाणी पिताना ते पाणी पूर्णपणे आपण पिऊ घ्याची खबरदारी घ्यावी. किंवा जितके पाणी पिऊ शकतो तितकेच पाणी भांड्यात घेऊन प्यावे. 

तसेच पाणी पिण्या पूर्वी दोन सेकंद थांबून त्या पाण्याला तुम्हाला हव्या असलेल्या इच्छा व्यक्त कराव्या.- त्यानंतर पाणी प्यावे त्यामुळे तुमच्या शरीराची, मनाची सकारात्मकता वाढेल. 

५. लक्ष्मी पूजनाच्या दिवसा पासून अखंड दीप तेवत ठेवावा – 

तो दीप 24 तास व 365 दिवस चालू राहिला अशी योजना करावी. ( जर काही कारणा मुळे जर ज्योत शांत झाली ( विझली असे म्हणू नये म्हणून शांत झाली असे म्हणतात) तर अगदी निश्चिंत मनाने लमी मातेचा जप करीत ती पुन्हा तेववावी ( पेटवावी म्हणू नये).

अशाप्रकारे पूजा विधी व पाण्याची योग्य काळजी घेतल्याने आणि योग्य वापराने लक्ष्मी मातेची आपल्यावर अखंड कृपा राहील आणि आणि आपल्या आयुष्यात आर्थिक सुबत्ता, सुख समाधान येईल.....   

                             || शुभं भवतु ||