Investments - Page 4 - WCafe Financial Services Pvt Ltd

Mistakes To Avoid Before Making Tax Saving Investments

We have entered March 2021 and soon we will be celebrating our 1 year lockdown anniversary. It Maybe not so much of a celebration but still, we have survived 1 year of COVID with some gains and some losses, and lots of learnings. Another reason to look forward to March 2021, is the last month to make all your tax-saving investments!

Choosing tax regime without comparing liability The finance ministry in the previous financial year 2020 had introduced a new tax regime that gives individual taxpayers the option to pay income tax at a concessional rate.
Read more about old regime vs new regime

Notably, if you opt for the new tax regime with lower tax rates, you will have to forego the deductions and exemptions including the standard deduction, deduction under Section 80C, interest paid on housing loan, etc. This can be helpful if you do not want to lock-in your funds for a longer period in tax-saving instruments such as Tax Saving Bank FD, Provident Fund, etc.

Comparing liability under the existing and the new tax regime while helping you to decide on the most suitable option depending on your income and expenses and customize your investment preferences accordingly.

1. Failing to ascertain actual taxable income

When computing the taxable income, it is important to take into account all sources of income. Besides the income from salary, you may have income from a business, rental income from property, interest from bank/post office deposits, capital gains from assets, or any other source.

Determining the taxable income is an important step in streamlining your tax planning exercise which will help you to correctly estimate the amount of tax-saving investment to be made for reducing your tax liability.

2. Taking the wrong approach to insurance

The primary purpose of a life insurance policy is to provide financial protection to dependents in case of the untimely demise of the insured person. Simply opting for a policy because it offers a tax deduction under Section 80C of the Income Tax Act, 1961 is an imprudent approach.

There is a possibility that you may end up investing in investment cum insurance policies such as endowment policies, money back plans, or ULIPs that provide tax-saving components along with life cover in a bid to meet tax-saving requirements. However, you must know that these products will neither provide adequate cover nor generate optimal returns. A simple-term plan is enough to take care of your life insurance requirement at a very reasonable premium. Read this article to compute how much cover should you have

3. Not aligning your Investments as per your goals and investment objective

Ensure that you are not investing in 80C investment options only for tax savings purposes. Check how it fits into your debt - equity allocation which is determined based on your risk profile. Further, these investments should be made to achieve your goals not just for the purpose of tax savings. Align them to your requirements. Do not just invest in 80C investment options, if you have already exhausted this limit, you can explore options beyond Section 80C. Besides, certain payments that are eligible for deductions such as payment of house rent, expenses towards children's school tuition fee, interest payment on the home loan.

Read these articles to know more about your tax planning before March 2021
1. How to save taxes before you invest your money.
2. Ways to save taxes under various sections of the Income-tax Act.
3. Mutual Fund taxation
4. How to save taxes on health insurance

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

Income Tax / Investments / Money tips / Uncategorized - 03/04/2021

Leave Travel Concession Cash Voucher - new ways to claim your LTA

Hello fellow investors,

It is that time of the year where we all start planning to submit your tax proofs to claim tax deductions. One such claim is the Leave travel allowance. Given that, none of us are really venturing into travel, a new component of leave travel concession - a cash voucher was introduced for salaried individuals.

This leave travel allowance (cash voucher) scheme initially announced for central government employees has now been extended to all other employees with riders to boost consumption during the festive season and also help you get tax deduction. The government has announced that all non-central government employees will be eligible for income tax exemption for the entire leave travel concession amount up to Rs 36,000 per person without producing travel bills. However, such employees will have to spend three times the amount for purchasing goods or services on which GST of 12% or higher is levied, said a press release from the Central Board of Direct Taxes.

Employees will have to make purchases through digital payment mode and submit the invoices to avail of the benefit.

What’s LTC For Private Sector?

Unlike government employees, their private-sector peers have a part of their salary or cost to the company, structured as leave travel concession. This is done to save tax on the total income of the employee. By showing travel expenses, the employee can avail of the income tax exemption on the travel amount. Those who haven’t availed of this benefit during 2018-21 would be eligible for the tax exemption.

Points to Note:

The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the current block (the year 2018-21);
The employee spends a sum equal to three times the value of the deemed LTC fare on purchase of goods/services which carry a Goods and Services Tax (GST) rate of at least 12% from GST registered vendors/service providers through digital mode;
The expense is made between 12 October 2020 and 31 March 2021; and
The employee obtains the voucher indicating the GST number and the amount of GST paid.

What Government Is Offering An employee?

An Employee who has not availed LTC during 2018-21 would be eligible to avail of the tax exemption subject to the condition that the person spends three times that amount on goods or services with GST of 12% and above.

Those who spend less than three times the fare amount will get proportionate income tax exemption. For example, if the LTC fare is Rs 20,000, and is claimed for a family of four, then the employee would get Rs 80,000 (20,000 x 4). The amount that the employee will have to spend would be Rs 2,40,000 (Rs 80,000 x 3). However, if the employee ends up spending only Rs 1,80,000, the person would get tax exemption of Rs 60,000 (75% of 80,000 or 1/3 of 1,80,000).

Thus, this income tax benefit may actually be considered as a discount on expenditure, which the employee has already planned to incur, instead of a reason to incur expenditure. On the other hand, income tax foregone by the Government may be offset by the additional GST revenue on expenditure incurred by the employees.

It is advisable to check with your HR department and your employer to see if the policy is modified to include the leave travel concession component and how you can claim this benefit for yourself. It was initiated to encourage people to shop more and take tax benefits on the same, so don't rush to buy new items but if you are buying anything, ensure you have GST documents of the same to claim tax benefits under LTC.

Debt / Equity / Investments / Money tips - 11/27/2020

Digital Gold: Have you pocketed everything you need to know?

Hello fellow investors

Digital Gold is considered as one of the best and most convenient ways to invest in gold for us gold love-stuck Indians. In the past one year, every other payment app like Paytm, Google Pay and now even Amazon Pay has joined the players who offer Digital Gold. Even many stockbrokers have joined the offering to cater to the Indians' love for Gold.

The increasing gold prices and higher returns in the past 1 year have only further affirmed this love. Is this digital gold all that glittery for real? Have you looked at the fees, cost structure, and the regulations behind buying digital gold? Read this article to understand the various nuances of digital gold and things to consider before buying digital gold (only for convenience)

Digital Gold – Have you pocketed everything you need to know?

The entire mantra of Digital India has been pushed to gold as well and now an investor can purchase gold using payment apps like Paytm, Phone Pe, Google Pay, Amazon Pay, etc.

As investors, it is important to be aware of how Digital Gold functions; where is the money eventually going, and how cost-effective this investment is. Here we will break down these concepts for you and help you have a well-informed discussion about digital gold and it will offer you insights if you should go for it or not.

What is Digital Gold?

Digital Gold is a way to invest in physical gold ‘digitally’. It is offered by 3 main vendors in India – Augmont Gold; MMTC-PAMP India Pvt. Ltd (a joint venture between state-run MMTC Ltd and Swiss firm MKS PAMP) and Digital Gold India Pvt. Ltd with its Safe Gold brand. Various payment apps such as – Paytm (Safe Gold), Google Pay (MMTC-PAMP), Amazon Pay (Safe Gold), and investment platforms such as – Kuvera, Groww, and stockbrokers bring to you this digital gold in partnership with one of the three vendors. There are many new financial service providers who are adding digital gold to their bouquet of services.

So how does this work? When an investor buys gold via these apps, physical gold equivalent to that amount is kept safely in a vault under the security of the vendors. The investor can then choose to sell the gold at any time using the same app or convert it into gold coins (after reaching a certain limit).

Digital gold enables an investor to buy, sell, and accumulate pure gold of finesse 99.99 (24K gold) infractions anytime, anywhere. Thus, even with a minuscule monetary investment of INR 1, an investor can buy gold (even if it’s a minuscule quantity of it) at their convenience regardless of the time and place. What’s more, is that one can do so without worrying about the purity of gold.

Is this product really all gold?

To dig deeper into the digital gold framework and its working, we checked the buying & selling prices on various apps and compared the same to MCX gold prices.

MCX Price on 18 September was INR 51,210

As you can see from the table above, there is a clear difference between the buy and sell price of digital gold. Also, the prices on these apps are much higher than the MCX price for gold.

The gold price is higher on the platforms as they charge convenience fees, gold handling charges, trustee fees, storage charges which are all included in the gold price but there is no breakup of these charges mentioned anywhere. Additionally, a GST of 3% is also payable on the gold price.

Meanwhile, the selling price is substantially lower than the buying price and on top of it, some platforms also charge a convenience fee when you sell the gold.

Making & delivery charges – An investor can take physical delivery of gold in the form of gold coins and jewellery (Paytm has tie-ups with Kalyan Jewellers). While converting to coins, making charges and delivery charges are payable. On the Paytm app, the minimum quantity of 0.5 grams of gold is required to convert to gold coins and the charges vary from 384 for 1 gram gold coin to 944 for 10 gram gold coin (these charges and specifications varies across each app)

Apart from the additional cost, the risk of investing in digital gold is that there is no regulator for the product. When digital gold is bought, the vendor purchases gold of an equivalent amount in the investor's name. Generally, a trustee is appointed to see if the quantity and purity of gold is maintained in line with the gold purchased by the investor. However, currently, there is no regulator to oversee if the trustee is doing the work properly. This is a point of concern because even the apps which help one to buy digital gold are only a medium to buy it. Ultimately gold is stored with the vendors.

In light of the lack of regulatory framework coupled with the high cost of digital gold, other investment options of gold such as sovereign gold bonds & Gold ETF appear more viable when investing larger amounts of money and for longer periods.

On the other hand, digital gold helps us, gold love-struck Indians, to accumulate gold in smaller quantities as investing in large amounts may be out of bounds for a large section of the population. And this can be seen in the high volume of transactions seen by platforms like Paytm in a short span of time.

If you want to know more about the basics of Digital Gold, do check out our video on the same through the following link:
https://www.youtube.com/watch?v=kNnyBJw6sm4&t=2s&ab_channel=WealthCafeFinancial

gold / Investments - 10/14/2020

Indian Stock Market timings

Indian Stock Market Timings

Trade in the stock market can only be undertaken during a specific time interval in India. Retail customers have to perform such transactions through a brokerage agency between 9.15 a.m. to 3.30 p.m. on weekdays. Most investors undertake the purchase/sale of securities listed on the major stock exchanges in India – Bombay stock exchange (BSE) and National Stock exchange (NSE). Indian stock market timings are the same for both these major stock exchanges.

Indian stock market timings for trade is divided into three segments:

Pre-opening Timing

This session lasts from 9.00 a.m. to 9.15 a.m. Orders to purchase or sell any securities can be placed during this time. It can be further classified into three sessions:

9:00 a.m. – 9.08 a.m.

During this stock market opening time in India, orders for any transaction can be placed. The order entry is given preference when actual trading begins, as these orders are cleared off in the beginning. Any requests placed during this time can be changed or canceled according to need, which is beneficial to investors, and no orders can be placed after this period of 8 minutes during the pre-opening session.

9:08 a.m. – 9.12 a.m.

This segment of Indian share market timing is responsible for the price determination of security. Price matching order is done by corresponding demand and supply prices to ensure accurate transactions among investors who want to purchase or sell a security, respectively. Determination of final prices at which trading will begin during normal Indian stock market timing is done through a multilateral order matching system.

Price matching order plays a vital role in determining the price at which the security is transacted during a normal session of Indian stock market timing.

However, the benefits of modification of any order already placed in not available during this session.

9:12 a.m. – 9.15 a.m.

This time acts as a transition period between preopening and normal Indian share market timing. No additional orders for transactions can be placed during this time. Also, existing bets already placed from 9.08 a.m. – 9.12 a.m. cannot be revoked as well.

Normal Session

This is the primary Indian share market timing lasting from 9.15 a.m. to 3.30 p.m. Any transactions made during this time follow a bilateral order matching system, wherein price determination is done through demand and supply forces. The bilateral order matching system is volatile, thereby inducing several market fluctuations which are ultimately reflected in security prices. To control this volatility, the multi-order system was formulated for the pre-opening session and was incorporated in Indian stock market timings.

Post-closing Session

Stock market closing time in India is marked at 3.30 p.m. No exchange takes place after this period. However, the determination of closing price is done during this time, which has a significant effect on the following day’s opening security price.

Stock market closing time in India can be divided into two sessions –

3:00 p.m. – 3.40 p.m.

The closing price is calculated using a weighted average of prices at securities trading from 3 p.m. – 3.30 p.m. in a stock exchange. For determining the closing prices of benchmark and sector indices such as Nifty, Sensex, S&P Auto, etc. weighted average prices of listed securities are considered.

3:40 p.m. – 4 p.m.

This period is post stock market closing time when bids for the following day’s trade can be placed. Bids placed during this time are confirmed, provided adequate buyers and sellers are present in the market. These transactions are completed at a stipulated price, irrespective of changes in opening market price.

Thus, capital gains can be realized if the opening price exceeds the closing price by an investor who has already placed their bids. In case closing price exceeds opening share price, bids can be canceled during the narrow window of 9.00 a.m. – 9.08 a.m.

The overall stock market operating time in India can be demonstrated by the following table:

S. No.	Name	Time
1.	Pre-opening session	9.00 a.m. – 9.15 a.m.
2.	Normal session	9.15 a.m. – 3.30 p.m.
3.	Closing session	3.30 p.m. – 4.00 p.m.

Aftermarket Orders

Post this time frame. No transactions can take place. However, investors can place aftermarket orders, for securities of chosen companies, which would be allocated at opening market price the following day.

‘Muhurat’ Trading

Indian stock market is generally closed for any transactions on Diwali, as it is a religious festival celebrated all across the country. However, a one-hour trading session is conducted from 5.30 p.m. to 6.40 pm as it is considered to be auspicious.

Equity / Insurance / Investments / stock market - 09/24/2020

Income-Tax Relief For Home Buyers

Hello fellow investors

As a part of various relief measures taken by the Government in response to the economic slowdown post-COVID-19, the Finance Minister (FM) has announced a very attractive income tax relief for home buyers (new residential properties of value up to Rs 2 crore). Here is what you need to know.

Income Tax relief for home buyers

In case the declared purchase consideration of the land/building is less than the stamp value (circle rate) by up to 20%, there will be no additional tax outgo for both the seller and the purchaser for the period 12th November 2020 to 30th June 2021. Earlier, the acceptable difference was 5% which was to be enhanced to 10% with effect from 01 st April 2021.

This move will also help developers in selling off their unsold inventory at up to 20% below the circle rate and the buyers in getting cheaper homes without any additional tax burden on either party. Let’s look at the relevant provisions of the Income Tax Act to understand the applicable tax relief.

Section 43CA of the Income-tax Act - for the seller

This section provided for deeming of the stamp duty value (circle rate) as sale consideration for the transfer of real estate inventory in the case the circle rate exceeded the declared consideration. The circle rate is the minimum rate per unit area fixed by the state governments for the sale of land or property and is
aimed at reducing stamp duty evasion by declaring lower sale values in the sale-purchase deeds.

Thus, even if the real estate was sold at a price below the circle rate, the circle rate was considered as the sale value for the calculation of the business profits of the seller. For example, if a house is sold by a developer for Rs 80 lakh but its value as per the circle rate is Rs 96 lakh, the developer is supposed to take Rs 96 lakh as the sale value for
calculating his profit.

Through Finance Act 2018, a difference of 5% between the two rates was declared to be acceptable. This was increased to 10% through Finance Act 2020. Now, the FM has raised this acceptable difference to 20%. Thus, in the above case, the difference is exactly 20% as seen below and the developer can consider Rs 80 lakh for calculating his profits from the sale.

Section 56(2)(x) of the Income-tax Act for the buyer

This section is applicable to the buyer and provides for stamp duty value to be deemed as purchase consideration even if the purchase was made at a lower price. As per the above example, the buyer is deemed to have received Rs 16 lakh (the difference between the stamp value and the sale consideration) and was supposed to declare this amount as ‘Income from other sources and pay tax on the same. Now, he will not have to pay any tax if the difference is up to 20% as is the case in the above example.

In summary, this announcement by the FM comes as a major relief to real estate developers who were struggling to offload their inventory due to lower demand in the market. The benefit is applicable, however, only for the primary sale of residential properties and not for commercial and secondary sales.

Income Tax / Insurance / Investments / Making Money / Money tips / Real Estate / Tax - 09/20/2020

'Investing' in Real Estate?

Hello fellow investors!

Roti - Kapda - Makaan has been the three needs of us Indians and we strive to make that makaan a reality. Once the makaan works as a shelter it becomes our personal asset. When you go for the second or the third property for investment reasons then you should consider the following points before proceeding.

Yes, the returns are good in real estate. We have always stated that investments are not all about returns, it is about building your portfolio to become financially free. So instead of just comparing past returns of both asset classes and claiming equity is better than real estate or vice versa, we would like to consider other important aspects.

1. Real Estate will skew your Asset Allocation

Investing is all about the right asset allocation. Investing a major portion of your investments in real-estate could skew your allocation in that direction for a very long time.

Once the Real estate is added to your investments, your allocation is considered with 4 assets, Real Estate, Gold, Equity & Debt. Once you choose to buy real estate, it may take a few years for other asset classes to occupy a significant portion of your portfolio. Hence, you should check and consider the reasons for investing in Real-estate.

2. It is hard to assign “present value” and calculate ‘growth’

Most people talk about how much their property is worth without actually speaking to potential buyers. It is only when you do so, you realize what is the real selling price of it. People would rather wait and enjoy lower returns than sell their properties at a price lower than what they want/wish to receive.

There is no designated market price. He who haggles the best wins here. Because of the lack of such a standard price, it makes real estate risky as most times people are stuck with a price they have in their mind without actually checking it for real.

3. It is not liquid enough that you can sell whenever you want.

I am sure you have heard of this, you cannot sell a bathroom to meet a financial emergency unlike Equity, mutual funds, and some debt options which can typically be traded in small amounts and on any business day.

You need to have other liquid assets (i.e. have a balance allocation) to take care of your financial needs.

4. TAX cost, buying another property.

The tax on capital gains from real estate in a way encourages you to go ahead to buy another property. As per the law, if you want to avoid capital gains tax on real estate you should necessarily reinvest the same in another property or in section 54EC bonds (with low returns) for 3 years to ensure the capital gains are tax-free.

5. Difficult to sell emotionally

Many people post-retirement do not have enough fixed income and other liquid investments to manage their every day cashflows. They are still not able to liquidate their properties for cash and use it for a more relaxed late age. They have an emotional attachment towards it and then it gets rationally difficult to decide to sell.

6. Risk of renting out

No guarantee of regular income. One may need to constantly look for tenants. Issues with paying property and water tax, and the legal hassles associated with tenants not moving out!

We do not intend to discourage you from purchasing houses for the purpose of investments but it is about becoming aware of what are the issues you can face when you do so. Before taking the decisions about investing in real estate, do calculate your returns, the money you would make from the investments in real - estate, and know your numbers. A close analysis for real-estate purchases should be done in a similar way as you would do for any other asset.

Analyze your risk-taking capacity and your goals before you make the final decision.

Happy Investing!

Investments / Real Estate - 08/28/2020

List of banks for your PPF investments

What is PPF?

Public provident fund is a popular investment scheme among investors courtesy of its multiple investor-friendly features and associated benefits. It is a long-term investment scheme popular among individuals who want to earn high but stable returns. Proper safekeeping of the principal amount is the prime target of individuals opening a PPF account.

Why open a PPF account?

A public provident fund scheme is ideal for individuals with a low-risk appetite and is okay to invest their money in the long term. Since this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the masses in India.

Eligibility Criteria

Indian citizens residing in the country are eligible to open a PPF account in his/her name. Minors are also allowed to have a Public provident fund account in their name, provided it is operated by their parent.

Non-residential Indians are not permitted to open a new PPF account. However, any existing account in their name remains active till the completion of tenure. These accounts cannot be extended for 5 years – a benefit available to Indian residents.

Interest in a PPF Account

The interest payable on the public provident fund scheme is determined by the Central Government of India. It aims to provide higher interest than regular accounts maintained by various commercial banks in the country.

Interest rates currently payable on such accounts stand at 7.9% and are subject to quarterly updates at the discretion of the government.

How to Open a PPF Account

Both offline and online procedures are available for an individual provided he/she meets the requisite parameters mentioned in the eligibility criteria. Activating PPF online can be done by visiting the portal of a chosen bank or post office.

The following documents have to be produced at the time of activation of a public provident fund account –

KYC documents verifying the identity of an individual, such as Aadhaar, Voter ID, Driver’s License, etc.
PAN card.

Residential address proof.

Form for nominee declaration.
Passport-sized photograph.

Tax Benefits

Income tax exemptions are applicable on the principal amount invested in a PPF as an account. The entire value of an investment can be claimed for tax waiver under section 80C of the Income Tax Act of 1961. However, it should be kept in mind that the total principal that can be invested in one financial year cannot exceed Rs. 1.5 Lakh.

The total interest accrued on PPF investment is also exempt from any tax calculations.

Therefore, the entire amount redeemed from a PPF account upon completion of maturity is not subject to taxation. This policy makes the public provident fund scheme attractive to many investors in India.

List of Banks Offering PPF Accounts

Allahabad Bank
Corporation Bank
Bank of Baroda
HDFC Bank
ICICI Bank
Axis Bank
Kotak Mahindra Bank
State Bank of India and its subsidiaries which include the following –
- State Bank of Travancore
- State Bank of Bikaner and Jaipur
- State Bank of Hyderabad
- State Bank of Patiala
- State Bank of Mysore
Canara Bank
Bank of India
Union Bank of India
Oriental Bank of Commerce
Central Bank of India
Bank of Maharashtra
Dena Bank
Syndicate Bank
United Bank of India
Indian Overseas Bank
Vijaya Bank
IDBI Bank
Andhra Bank
Punjab National Bank
UCO Bank
Punjab and Sind Bank

These are some of the common PPF Account opening banks. There are other banks too and if you hold a savings account with another bank that is not on the list, you can find out whether the bank is a PPF Account opening bank or not.

Insurance / Investments / Money tips / Salary / Tax - 07/20/2020

A Fixed Interest Of 8.5% With Low Interest- Invest Now?

Hi fellow investors

Have you recently checked returns of debt investment options like Fixed deposits/Liquid Funds? I am sure you would have been very disappointed by the return numbers there. The approx interest from some of the popular debt investments today are::

1. Overnight/Liquid Debt Funds (Up to 90 days): 3.5% - 4.0%
2. Short term Debt Funds (1-3 yrs): 5.5% - 6.5%
3. Fixed Deposits (1-5 years): 5.5% - 6.5%
4. Bharat Bond ETF (5-year bond) - 5.46%
5. Public Provident Fund (PPF) (15 years) - 7.1%

Clearly, the returns have reduced by 3%-5% across different debts in the past few months and debt as an investment category doesn't look very attractive. With the latest inflation number hovering at 6%, our money invested in the above debt options barely covers the impact of inflation on our expenses.

What if I told you that there was an option to earn 8.5% per annum?

For salaried fellow investors, it is something you deal with every payslip; Employee Provident Fund (EPF), giving an interest rate of 8.5% (for FY 2020-21) which is not only risk free, but also tax free.

How can you make the most of it?

If you are a salaried individual and your company has a provident fund and you have not opted for EPF, you could opt for it as in the current market scenario no other debt investment is giving returns as high as 8.5% p.a.

1. Maximize your EPF Limit

If you are just contributing only INR 1,800 (the minimum required under EPF rules) towards your EPF account, you could consider increasing it making it to 12% of your basic salary. That way you can make the full use of the EPF limit available to you.

2. Invest as VPF (Voluntary Provident Fund)

Where you are already investing 12% of your Basic Salary towards EPF and want to invest more to earn 8.5% you have an option to increase your contribution in EPF by opting for VPF (Voluntary Provident Fund). You can invest an amount up to your entire 'Basic' salary with the EPFO and earn the same interest rate of 8.5%. Please note your employer is not obliged to match this higher contribution and hence, it is called a 'voluntary' provident fund.

Features of VPF that you must know of

It will earn you the same interest as your EPF i.e. 8.5% per annum (currently)
It will have a lock-in period of 5 to 10 years but you can withdraw for some specific reasons. Check out when can you withdraw from your EPF here.
Your employer will not match the contribution of your VPF unlike EPF
our contribution to VPF is eligible for tax deduction under section 80C.
The interest earned from VPF would also be tax-free (provided it is not withdrawn within the first 5 years).

So, if you have funds that you want to invest in risk-free investments and can park it for a while, (EPF + VPF) is a good debt investment option and can be mapped to your retirement goal.

How much should you invest in VPF?

We are not advising you to invest your entire salary as VPF and have no money to pay your bills or cover your short term goals. We also don't want you to miss out on your equity investments that result in wealth creation over the long run. You can compute how much to invest as your VPF as under:

For example, if your in-hand salary is INR 1,50,000 per month (A basic component of INR 50,000):

12% of your basic salary i.e. INR 6,000 would be invested as your EPF.
A matching amount of INR 6,000 will be contributed by your Employer.
If your monthly expenses are INR 100,000, you have a monthly savings of INR 62,000 (INR 50,000 + INR 12,000).

Now if you are looking to invest in VPF, the lower of the 2 parameters will help you compute the same.

Limit I:
Not more than 40% of your total portfolio holding should be in illiquid investments (Know about the step-by-step process to withdraw your EPF). You can ensure this by not contributing more than 40% of your monthly savings towards Illiquid investments.
Accordingly, 40% of your savings (INR 62,000) will be INR 24,800 out of which INR 12,000 is already invested as EPF. So the balance you could additionally invest is INR 12,800 as per this.

Limit II:
It should be considered as a part of the contribution you make towards your retirement goal. Now if your retirement goal requires you to invest 18,000 per month for the next 25 years to achieve your corpus to retire peacefully (based on Wealth Cafe Investing tool) and you are already investing INR 12,000 from the EPF, then only the balance of INR 6,000 should be invested towards VPF.

Limit III:
You are already investing INR 12,000 towards EPF. A maximum of another INR 38,000 can be invested by you in VPF.

Based on the above limits, INR 12,800 or INR 6,000 or INR 38,000 whichever is lower can be additionally invested in your VPF.

For simplicity sake, the above computation assumes that you are not investing your money in any other illiquid investments and are not saving for your retirement in any fund apart from EPF and VPF. If you are doing so, the amount invested in that could be reduced from the amount arrived at in Limit I & II above.

Another advantage of using the VPF route is that it is invested directly from your salary and then the balance salary comes to you, ensuring the consistency of your investments.

Do review your numbers and you will have to contact your HR/accounts team to start contributing to VPF. Let us know if you have any questions about this in the comments section of our blog.

Debt / Equity / Investments / Money tips / Salary - 07/15/2020

Be the champion of your Investments - A Liverpool Fan's Analogy

Hi fellow investor,

Date night discussions with my husband does belong to our goals or my travel plans but the evenings he gets a chance to contribute to our conversations (which is not rare), it is a detailed discussion on how sports can help you build character, release stress, and become a better strategist. For me, sports was always Cricket and Sachin (why not!); but this weekend I was celebrating the championship win of Liverpool Football Club (they won the domestic league after 3 decades) with my husband.

I am not a football expert; but yes, in the past one year, I have heard enough stories and 'force watched' some late-night matches with my husband to understand what this win means to him and in general to everyone who is a football fan. So along with one such discussion, we have together compiled this financial learning from the win of Liverpool and we hope that you will enjoy this too.

Learnings from the Liverpool championship after 30 years:

Planning & Strategy Is Most Crucial For Your Win
The player cannot just kick a football anywhere he wants - similarly you just can't get up and start investing your money anywhere you want. There are defined goals and strategies to put your money (like the ball) in the right asset classes. As they say - A goal without a plan is just a wish.

The way the Liverpool team transformed itself from very ordinary gameplay to a very possession and pressing-oriented gameplay with a purpose behind every move, and every player in the team has a specific role to play, similarly there is a definite role to be played by every asset in your portfolio and you should invest by maintaining your asset allocation and goals.

Some Championships Take Time
Don't jump ship after every loss - Liverpool, historically one of the largest and most successful clubs in the football world had to wait for 30 years to win a domestic league cup. They won the champions league last year making it 6 Champions League titles (a record number of Champions League by an English club). But they were just a point shy of a Domestic League last year which cost them the title (but that did not make me stop supporting the club). Finally, they made it happen this year!! So yes, at the face of it one may say 30 years too long but it is important to know what has happened right and wrong in these years.

Similarly, when you are investing, some of your best investments may give you unexpected loss in some years and you may tend to dump them. If you start selling with every sight of loss, your investments will not have enough time to compound and grow. Every decision to invest, stay, and sell must be made based on an appropriate analysis of the variations in the returns and your goals.

Focus On The Management Style
A new manager who took charge almost 5 years ago, brought about some gradual changes to the club for good, resulting in all the success the Club garnered in these 5 years.

Similarly, when you are investing in Stocks or Mutual Funds, a change in management (style of investing) can move your investments either towards good or bad. Hence, it's important to know about your managers, their style of investing, and whether that matches your expectations from the investment or not. It is not only numbers that show you performance but also non-financial things like the attitude and strategy of the management.

A Good Strategy May Take Time To Show Results
Give time to your fund managers/advisors - Jurgen Klopp took over Liverpool FC almost 5 years ago (in October 2015) and the first 3 years were only spent in organizing/ streamlining the team, picking up the right player to include in the squad and prepping them. There was not much belief then as compared to now. In the past year, Liverpool FC has won 4 major honors in football that made them the world Champions in 2020. But when someone with new strategies comes in we need to be patient about the kind of results they can show.

The same applies to our investments and advisors. No one holds a magic wand and it takes time to show results; in the right hands, there is a possibility of the results compounding over time and give the investors exponential returns. Don't go asking - 'Kitna returns milega?' as your first question to your advisors.
"Sometimes it is not about money, but rather the process of managing the money" - Anonymous

To sum up, have a plan for your investments and see them work towards that plan instead of letting time and circumstances let your goals fade away. Discuss the plan with your partners and family just like you discuss sports and movies. In the last year I learnt a lot about about football and Liverpool over the dinner table. But we never forget to sit and discuss our investments each month and review our statements because remember - You will never walk alone.

Investments / Money tips - 07/08/2020

How can I downsize my portfolio? - Part 2

Hi fellow Investors,

As discussed 2 weeks back (in our article - How many Mutual Funds should you have, an investor should not have more than 5-6 Mutual Funds in his/her portfolio. These should be restricted to 1 Mutual Fund scheme to invest in each Mutual Fund category based on your risk profile, goals, and other requirements. As a follow up to this, we told you that we shall tell you how to downsize/limit your portfolio to 5-6 Mutual Fund schemes.

The simplest way to do this is to first identify which Mutual Fund categories you need to invest in (based on your risk and goals) and identify the right schemes in each category (it is advisable to invest in schemes that are right for you and not look for the best schemes). This will give you your desired holding of Mutual Fund Schemes.

Once you have done that, it is important to take stock of mutual funds that you already have.

Make a list of all your investments in Mutual Funds. To do this, you can download your Consolidated Account Statement from CAMS Online. It will give you transaction wise details of all your mutual fund transactions provided you have used your existing email ID when doing the transactions. Otherwise, if you have an agent or use a platform for investing in mutual funds - you can ask them as well for a holding report.

Compare the existing holding of schemes with the list of desired holding schemes determined above.

SELL unwanted schemes

The way to downsize is to redeem the extra/unwanted schemes and invest the proceeds from the redemption into the desired mutual fund schemes. You can exit from some scheme and buy another scheme in the same category (hence, setting off your loss or gain). You will have to trim your portfolio to reduce it to 5-6 mutual fund schemes.

How should you decide what to sell?

Maintain your Asset Allocation
We always tell you to do this and this time around as well, it's the same solution. Your investments in various asset classes should be made to achieve the right allocation. Even with Mutual Funds, your split between Debt & Equity should be based on your asset allocation. You can read more on this here - https://financial.wealthcafe.in/how-should-you-invest-right-now/

% of your portfolio - Small value funds
You can choose to sell the schemes where the invested amount is low and they are only increasing the number of schemes you hold.

Underperforming funds
Analyze the performance of your invested funds and understand which are the funds you should have in your portfolio. Exit from risky funds and poor performing funds. This can be understood by checking the returns of your scheme with the underlying benchmark returns.
Currently, almost all your investments pre-march would be performing poorly, hence it is important for you to check funds past consistent performance and not just last 2 months' results.

Minimalism is the key to a cleaner and better portfolio as the reduced number of funds makes it easier for you to analyze your invested funds regularly and also, take a more informed decision with respect to your investments. Also, the cost of managing these funds is reduced.

Where you have just started investing, keep in mind that every time you want to invest more money, you need not invest that in a new mutual fund scheme. You can instead increase your SIP amounts in your existing schemes.

Consult an Advisor
Where you already have 15 - 20 Mutual Funds and are finding it difficult to select which ones to keep and which ones to let go, it is advisable to get the assistance of a financial advisor who will go through your risk profile and advise you exactly which mutual funds to hold and for how long. Where you need an advisor/financial planner for your specific financial needs, you can reach out to us at https://ria.wealthcafe.in/