Mistakes a couple should avoid about money

While it’s true that love might not cost a thing, plenty of romances fall victim to money — or at least to money mistakes.

Money and relationships are inseparable, and if you mismanage the former, the latter hardly stands a chance. Openly discussing financial matters is a touchy subject for many, and it’s no different when it comes to couples and money. Depending on each of our own personal histories, our financial problems, our values, and our relationship with money, it can symbolize different things to different people, which can make it difficult to talk about.

Personal finance is difficult – sometimes embarrassing – topic to discuss with our significant other, and sometimes it seems easier just to ignore the elephant in the room. It’s important to discuss managing money and finances early on in the relationship so we can avoid fighting over money in the future. However, if “early on” has long since passed, there’s still hope for your marriage or relationship.

Here are a few common money mistakes couples make and how to fix them.

1. Keeping Money a Secret

Keeping something money-related a secret from your loved one can be a huge problem. They can feel like they were left out, that you didn’t trust them, and/or that you are financially cheating.

Money secrets may include:

  • Secret debt.
  • Secret money saved.
  • Lying about how good or bad the family is financially doing.
  • And more, of course!

It’s important to be open about money as it is to be open about even the most intimate aspects of your love life. 

2. Leaving Financial Responsibilities to Just One Partner

It takes two to tango — and this has never been truer than when it comes to financial heavy lifting. This includes paying the bills and the management of investments

Where one of you can take charge of your finances, but both of you must be aware and doing it together. – we have discussed it in detail in our session 1 of the course.

 

3. Not talking about your money past

Many of our beliefs about money form at a young age, and we’ve all had different financial experiences as adults. You and your partner are not going to agree on everything when it comes to money, but understanding each other’s money beliefs and experiences can help you appreciate why they make the financial decisions that they do.

4. Neglecting to talk about your financial future

Many of the money decisions that you’re making now impact not only your current financial security but also the way you’ll be able to spend and enjoy your money in the future. Thinking about that future together — and making a plan for how you’ll pay for it — is a great way to make sure you’re both on track to make it happen. It can also be one of the most enjoyable money-related conversations that many couples have.

5. Income Shaming

Even in relationships that began at work, it’s likely that one partner makes more money than the other.

It’s never okay for the bigger breadwinner to hold the wage gap over the head of the lower earner. Instead, it’s important to remember that you’re two equal parts of a team moving toward the same goal.

6. Not having a plan for your accounts. 

There is no ‘right’ way to manage your accounts. Couples can choose to have exclusively joint accounts, a joint account as well as separate accounts for saving or personal spending or keep things entirely divided. Discuss your preferences together and decide what makes you both the most comfortable.

However, keeping money in one account is risky and outright wrong. Keep a balance to bring equality. Divide your savings and investments equally. We do this by having two separate bank accounts.

  1. Income account – in which your salary/fees, basically any earnings, are credited each month.
  2. Investment Account – in which you shall transfer your savings from your salary account. This account will be for all your investments. You will make all your investments, for example, insurance premiums, mutual fund (SIP), deposits, and equity, from this account.

This system of having two bank accounts will ensure that you are saving first – as you MUST transfer a fixed sum of money from your income account to your investment account.

7. Failing to set up an emergency fund.

Life is full of surprises and unfortunately, some of these surprises can be expensive. Having an emergency fund will help you avoid precarious financial situations should something come up. You must decide together how you’ll set aside the money.

8. Not establishing a minimum cost for discussing big expenses. 

While not all purchases demand a conversation, more expensive ones that impact the family budget should. Determine what that threshold is as a couple. For any expenses above a particular cost, you both should agree on whether it’s a necessary purchase.

9. Forgetting To Have a Laugh

Financial anxiety can be all-consuming stress. That’s why it’s so important to find a little levity wherever you can.

Money issues are serious. You shouldn’t take them lightly. But a lighthearted approach to a heavy subject matter can take the edge off of the stress that financial strain can put on even the healthiest relationships. You have someone to weather the storm with — be happy for that and don’t forget to laugh when you can.

We all have our share of financial mistakes, for sure, as a married couple. But, if we value each others’ advice and respect each others’ take on things, it will surely blossom as a happy marriage with surely fewer financial mistakes.

Now that you’ve read this list of don’ts after saying the “I do’s”, it’s time for you to start the steps to better secure your financial stability to pair with your matrimonial bliss. 

Pre-book to our course- Honey & Money to get  70% discount now – click here.

Article Headers (22)

What is e-Rupi? All you need to know about India’s new digital currency.

There have been incidents of poor people being regularly robbed of their pensions and scholarships by corrupt banking correspondents who take their fingerprints citing different excuses. To eliminate such problems, on 2nd August 2021, the Prime Minister of India Mr. Narendra Modi launched a digital payment platform called e-RUPI Digital Platform. 

The US, South Korea, and several other countries have used similar voucher-based incentives for welfare services.

What is e-RUPI?

e-RUPI is an e-voucher, which is cashless, contactless, and is a person and purpose-specific payment solution. A beneficiary will be required to show the QR code or the SMS message to the merchant, who will scan the same and a verification code will be sent to the beneficiary’s phone number. The latter will have to share the code with the merchant and the payment will be successful.

For instance, if you have an e-RUPI voucher for the Covid-19 vaccine, then it has to be redeemed for vaccines only. Before e-RUPI coupons are sent to the mobile numbers, the mobile number and identity of the citizen will be verified. This could also help in preventing corruption in the system (at least until the corrupt officials find a way to circumvent this too :P)

State Bank of India (SBI), ICICI Bank, HDFC Bank, Punjab National Bank (PNB), Axis Bank, and Bank of Baroda will provide both issuance and redemption facilities for e-RUPI coupons. Meanwhile, Canara Bank, IndusInd Bank, Indian Bank, Kotak Mahindra Bank, and Union Bank of India will only issue e-RUPI coupons for now.

As a one-to-many payments facilitator, it will help the government sharpen targeted welfare programs. The private sector will find it helpful to disburse non-cash benefits to employees and support focussed CSR programs. Later, individuals could use it for gifting.

What are the uses of e-RUPI?

Many services will be provided by the government through e-RUPI in the country. It can also be used to ensure leak-proof delivery of wellness services. To be used for leak-proof delivery of fertilizer subsidies, TB eradication programs, Ayushman Bharat, Pradhan Mantri Jan Arogya Yojana, Mother, and Child Welfare Schemes, etc.

The government has also talked about giving the benefit of this digital voucher for the private sector employee welfare and corporate social responsibility. This app is not released as a normal payment app. Soon you will be able to get many services through e-RUPI after it is released by the government today. E-RUPI will be spread across the country through SMS string or QR code.

  • COVID Vaccine Registration
  • SSC CGL Admit Card 2021
  • Download Window 11 ISO file
  • Upgrade Window 10/7 to 11
  • OLA Electric Scooter Dealership
  • Delta Plus Variant Symptoms
  • T20 World Cup Schedule
  • IPL Schedule 2021 Remaining matches

Benefits and loopholes

Aimed at bridging the digital gap among the unbanked population, the beneficiaries or users of this payment mechanism will not require a card, digital payments app, or internet banking access to redeem the voucher.

e-RUPI transaction process is said to be secure and will be keeping the details of the beneficiaries completely confidential, maintaining their privacy.

The introduction of the Covid vaccination voucher is also aimed at ramping India’s vaccination drive as e-RUPI allows beneficiaries to easily book appointments for the shots. However, with the beneficiary not required to disclose their identity, these vouchers are also likely to be claimed by other people.

With the help of the E Rupi application, digital payment has been done simply. Many institutes have shown their interest in this application. The adoption of e-RUPI in various government programs will enhance business efficiency, simplicity, transparency, and accountability in various programs with tax implications such as meals, education, travel, and health. So, if you want to enjoy this app, download it from the online interface.

Official PortalClick here
MPNRC HomeClick here

e-RUPI opens up a world of opportunities to the government, people, and businesses to provide, avail, and pay for services seamlessly. You will soon be able to use e-Rupi Digital Payment System. 

Through this article, we have provided you with all the basic details regarding e-RUPI digital payment. If you are still facing any kind of problem then you can write us your questions related to your e-Rupi Digital Payment in the comment box.

Income-tax Rates FY 2021-22 (AY 2022-23)

Before knowing the tax rates, it is very important to understand the terms Financial year (FY) and Assessment Year (AY).

The below-mentioned tax rates/ slab is on the income earned for the period 1 April 2021 to 31 March 2022. FY stands for the ‘financial year’ which is from 1 April 2021 to 31 March 2022. AY stands for Assessment year which is 1 April 2022 to 31 March 23.

For individuals, the due date to file the income tax return for the income earned from 1 April 2021 to 31 March 2022 is 31 July 2022. 

Income tax Rates 

  1. Income Tax Rate & Slab for Individuals & HUF:
    1. Individual (Resident or Resident but not Ordinarily Resident or non-resident), who is of the age of less than 60 years on the last day of the relevant previous year & for HUF:

 

Taxable incomeTax Rate

(Existing Scheme)

Tax Rate

(New Scheme)

Up to Rs. 2,50,000NILNIL
Rs. 2,50,001 to Rs. 5,00,0005% 5% 
Rs. 5,00,001 to Rs. 7,50,00020%20%
Rs. 7,50,001 to Rs. 10,00,00020%15%
Rs. 10,00,001 to Rs. 12,50,00030%20%
Rs. 12,50,001 to Rs. 15,00,00030%25%
Above Rs. 15,00,00030%30%

 

  1. Resident or Resident but not Ordinarily Resident senior citizen, i.e., every individual, being a resident or Resident but not Ordinarily Resident in India, who is of the age of 60 years or more but less than 80 years at any time during the previous year:
Taxable incomeTax Rate

(Existing Scheme)

Tax Rate

(New Scheme)

Up to Rs. 2,50,000NilNil
Rs. 2,50,001 to Rs. 3,00,000Nil5%
Rs. 3,00,001 to Rs. 5,00,0005%5%
Rs. 5,00,001 to Rs. 7,50,00020% 10%
Rs. 7,50,001 to Rs. 10,00,00020% 15%
Rs. 10,00,001 to Rs. 12,50,00030% 20%
Rs. 12,50,001 to Rs. 15,00,00030% 25%
Above Rs. 15,00,00030% 30%

 

  1. Resident or Resident but not Ordinarily Resident super senior citizen, i.e., every individual, being a resident or Resident but not Ordinarily Resident in India, who is of the age of 80 years or more at any time during the previous year:

 

Taxable incomeTax Rate

(Existing Scheme)

Tax Rate

(New Scheme)

Up to Rs. 2,50,000NilNIL
Rs. 2,50,001 to Rs. 5,00,000Nil5%
Rs. 5,00,001 to Rs. 7,50,00020%10%
Rs. 7,50,001 to Rs. 10,00,00020%15%
Rs. 10,00,001 to Rs. 12,50,00030%20%
Rs. 12,50,001 to Rs. 15,00,00030%25%
Above Rs. 15,00,00030%30%

 

  1. Surcharge:
    a) 10% of Income-tax where total income exceeds Rs.50 lakh
    b) 15% of Income-tax where total income exceeds Rs.1 crore
    c) 25% of Income-tax where total income exceeds Rs.2 crore
    d) 37% of Income-tax where total income exceeds Rs.5 crore
  2. Note: The enhanced surcharge of 25% & 37%, as the case may be, is not levied, from income chargeable to tax under sections 111A, 112A, and 115AD. Hence, the maximum rate of surcharge on tax payable on such incomes shall be 15%.
  3. Education cess:4% of income tax plus surcharge
  4. Note: A resident or Resident but not Ordinarily Resident individual is entitled to a rebate under section 87A if his total income does not exceed Rs. 5, 00,000. The amount of rebate shall be 100% of income tax or Rs. 12,500, whichever is less. rebate under section 87A is available in both schemes I.e. existing scheme as well as the new scheme.

 

  1. Income Tax Rates for AOP/BOI/Any other Artificial Juridical Person:
Taxable incomeTax Rate
Up to Rs. 2,50,000Nil
Rs. 2,50,001 to Rs. 5,00,0005%
Rs. 5,00,001 to Rs. 10,00,00020%
Above Rs. 10,00,00030%

 

Surcharge:

  1. a) 10% of Income-tax where total income exceeds Rs.50 lakh
  2. b) 15% of Income-tax where total income exceeds Rs.1 crore
  3. c) 25% of Income-tax where total income exceeds Rs.2 crore
  4. d) 37% of Income-tax where total income exceeds Rs.5 crore

Note: Enhanced Surcharge rate (25% or 37%) is not applicable in case of specified incomes I.e. short-term capital gain u/s 111A, long-term capital gain u/s 112A & short-term or long-term capital gain u/s 115AD(1)(b).

Education cess: 4% of tax plus surcharge

 

  1. Tax Rate for Partnership Firm:

A partnership firm (including LLP) is taxable at 30%.

Surcharge: 12% of Income-tax where total income exceeds Rs. 1 crore

Education cess: 4% of Income-tax plus surcharge

 

  1. Income Tax Slab Rate for Local Authority:

A local authority is Income taxable at 30%.

Surcharge: 12% of Income-tax where total income exceeds Rs. 1 crore

Education cess: 4% of tax plus surcharge

 

  1. Tax Slab Rate for Domestic Company:

A domestic company is taxable at 30%. However, the tax rate is 25% if turnover or gross receipt of the company does not exceed Rs. 400 crore in the previous year.

ParticularsTax Rate(%)
If turnover or gross receipt of the company does not exceed Rs. 400 crore in the previous year 2019-2025%
If the company opted section 115BA (Note 1)25%
If the company opted for section 115BAA (Note 2)22%
If the company opted for section 115BAB (Note 3)15%
Any other domestic company30%

 

Note 1: Section 115BA – A domestic company which is registered on or after March 1, 2016, and engaged in the business of manufacture or production of any article or thing and research in relation to (or distribution of) such article or thing manufactured or produced by it and also It is not claiming any deduction u/s 10AA, 32AC, 32AD, 33AB, 33ABA, 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB), 35AC, 35AD, 35CCC, 35CCD, section 80H to 80TT (Other than 80JJAA) or additional depreciation, can opt section 115BA on or before the due date of return by filing Form 10-IB online. The company cannot claim any brought forward losses (if such loss is related to the deductions specified in the above point).

Note 2: Section 115BAA – Total income of a company is taxable at the rate of 22% (from A.Y 2020-21) if the following conditions are satisfied:

– Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA or 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT (Other than 80JJAA).

– Company is not claiming any brought forward losses (if such loss is related to the deductions specified in the above point).

– Provisions of MAT are not applicable to such companies after exercising of option. The company cannot claim the MAT credit (if any is available at the time of exercising section 115BAA).

Note 3: Section 115BAB – Total income of a company is taxable at the rate of 15% (from A.Y 2020-21) if the following conditions are satisfied:

– Company (not covered in section 115BA and 115BAA) is registered on or after October 1, 2019, and commenced manufacturing on or before 31st March 2023.

– Company is not formed by splitting up or reconstructing a business already in existence.

– Company does not use any machinery or plant previously used for any purpose.

– Company does not use any building previously used as a hotel or a convention center, as the case may be.

– Company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to (or distribution of) such article or thing manufactured or produced by it. Business of manufacture or production shall not include the business of –

  • Development of computer software;
  • Mining ;
  • Conversion of marble blocks or similar items into slabs;
  • Bottling of gas into the cylinder;
  • Printing of books or production of the cinematographic film; or
  • Any other notified by Central Govt.

– Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA or 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT (Other than 80JJAA and 80M).

– Company is not claiming any brought forward losses (if such loss is related to the deductions specified in the above point).

– Provisions of MAT are not applicable to such companies after exercising of option. The company cannot claim the MAT credit (if any available at the time of exercising of section 115BAA).

Surcharge:

  1. a) 7% of Income-tax where total income exceeds Rs.1 crore
  2. b) 12% of Income-tax where total income exceeds Rs.10 crore
  3. c) 10% of income tax where domestic company opted for section 115BAA and 115BAB

Education cess: 4% of Income-tax plus surcharge.

 

  1. Tax Rates for Foreign Company:

A foreign company is taxable at 40%

Surcharge: 

  1. a) 2% of Income-tax where total income exceeds Rs. 1 crore
  2. b) 5% of Income-tax where total income exceeds Rs. 10 crore

Education cess: 4% of Income-tax plus surcharge.

  1. Income Tax Slab for Co-operative Society
Taxable incomeTax Rate

(Existing Scheme)

Tax Rate

(New Scheme)

Up to Rs. 10,00010%
Rs. 10,001 to Rs. 20,00020%22%
Above Rs. 20,00030%

 

Surcharge:

  1. a) 12% of Income-tax where total income exceeds Rs. 1 crore
  2. b) In the case of Concessional scheme, the surcharge rate is 10%

Education cess: 4% of Income-tax plus surcharge.

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.

What is loss aversion bias in investing?

Loss aversion is a tendency in behavioral finance where investors are so fearful of losses that they focus on trying to avoid a loss more so than on making gains. The more one experiences losses, the more likely they are to become prone to loss aversion.

For instance, say you bought 100 shares of Yes Bank at Rs 50 per share. If the stock fell to Rs 30, and you bought another 100 shares, your average price per share would be Rs 40.  If the stock further fell to Rs 15, and you bought another 100 shares, your average price per share would be Rs 30. And if you now feel the need to sell, you would be facing a loss of approx 53%. (We have taken this only for an example purpose, no recommendation or fundamental is done for the stock)

Purchasing more shares to average down the price wouldn't change that fact, so do not misinterpret averaging down as a means to magically decrease your loss. This is a very common practice followed by investors where they keep buying more shares at the dip, thinking they are lowering their cost, without understanding that they are just incurring more losses. Such methods of buying at a lower cost must be followed only and only where the company has strong fundamentals and you are sure that the current dip in the price is due to some change in the market scenario. If the losses continue, then do you think buying more is the solution or booking your losses is?

Research on loss aversion shows that investors feel the pain of a loss more than twice as strong as they feel the enjoyment of making a profit.

EXAMPLES OF LOSS AVERSION

Below is a list of loss aversion examples that investors often fall into:

  • Investing in low-return, guaranteed investments over more promising investments that carry a higher risk
  • Not selling a stock that you hold when your current rational analysis of the stock clearly indicates that it should be abandoned as an investment
  • Selling a stock that has gone up slightly in price just to realize a gain of any amount, when your analysis indicates that the stock should be held longer for a much larger profit
  • Telling oneself that an investment is not a loss until it’s realized (i.e., when the investment is sold)

HARMFUL EFFECTS OF LOSS AVERSION

  • Loss aversion causes investors to hold on to loss-making stocks or funds for a very long period. They refuse to sell a stock or fund at a loss and can hold on to it for long periods of time even if there are better alternative investment options available.
  • Aversion for losses makes investors hold on to loss-making stocks or funds till the loss is recovered. Ultimately, when the investor sells the stock or fund, a long time may have elapsed and the return on the investment is very low.
  • There are also instances of investors holding on to loss-making stocks/funds and then finally selling them at a much bigger loss than what they would have incurred if they sold earlier.
  • Loss aversion is commonly seen in property / real estate investments. Investors refuse to sell their property at a loss and hold on to it hoping the investment will turn profitable someday. Throughout the holding period of the investment, they pay interest on their loans which could have been avoided if they sold earlier.

RATIONAL STRATEGIES FOR AVOIDING LOSSES
Let’s look at some examples of how a company or an individual can reasonably minimize risk exposure and losses:

  • Hedge an existing investment by making a second investment that’s inversely correlated to the first investment
  • Invest in endowment plans/debt products that have a guaranteed rate of return so you have your safety net in place
  • Invest in government bonds directly or via mutual funds (but be aware of the liquidity and the interest rate risk over there)
  • Purchase investments with relatively low price volatility and only after thorough research. Do not just buy because something is priced low. Understand the value of it before investing.
  • Consciously remain aware of loss aversion as a potential weakness in your investing decisions and make more conscious smart decisions.
  • Invest in companies that have an extremely strong balance sheet and cash flow generation. (In other words, perform due diligence and only make investments that rational analysis indicates have genuine potential to significantly increase in value.) and DO NOT MAKE INVESTMENTS BASED ON TRENDING TWEETS AND TELEGRAM GROUPS.

CONCLUSION
No one likes to make a loss, but loss aversion can cause you to lose more money or make less money than what you feared to lose. Sometimes, it is better to book a loss and move on to alternative investment options. This moving on will help you invest for the long term better and make money eventually. 

It is difficult to separate emotions from investing, but successful investors are able to do it. You should do what is right to meet your financial goals including selling funds that are underperforming consistently and switching to better funds. A good financial advisor can help you overcome this behavioral bias. You should have a rational and objective portfolio performance evaluation process; take the help of a financial advisor if required. We are SEBI registered investment advisors and can help you make sound investment decisions - you can reach out to us at iplan@wealthcafe.in, in order to help you make a financial plan for yourself.

Taxation of Mutual Funds for FY 2021-22 (AY 2022-23).

First, let us understand what are the factors that determine Mutual Fund Taxation. The three major parts of these are below.

  • Your Residential Status-Resident or Non-Resident (NRI)

Your tax will be based on your residential status. If you are a resident then the taxation rules will be different and if NRI then it differs. Hence, first, you have to make sure of your residential status.

  • Types of Funds-Equity Funds or Non-Equity Funds-

Any fund which invests 65% or more in equity is called an Equity Fund. For example, large-cap funds, multi-cap funds, small and mid-cap funds, or equity-oriented balanced funds (where the equity exposure is 65% or more) are all called equity-oriented funds.

If the equity portion is less than that, then they are all treated as debt funds or non-equity funds. For example liquid funds, ultra-short-term funds, short-term funds, income funds, gilt funds, debt-oriented balanced funds, gold funds, funds of funds or money market funds.

  • Holding periods of Investment–

The holding period for Equity and Debt Funds will be different for taxation purposes. For equity funds, if the holding period is more than a year, then it is called the long term. If the holding period is less than a year, then such an equity mutual funds holding period is considered a short term. Whereas in

Whereas in the case of debt funds, a holding period of more than 3 years is considered as long-term. If the holding period of debt funds is less than 3 years, then it is considered short-term and taxed accordingly.

I will try to explain the same from the chart below.

The Capital Gain Mutual Fund Taxation FY 2021-22 / AY 2022-23 will be as per the below table.

Individuals

NRI

Stocks & equity oriented Mutual Funds

LTCG10% above Rs 1 lakh gain10% above Rs 1 lakh gain
STCG15%15%

Other than Stocks & equity oriented Mutual Funds

LTCG20% with indexationListed 20% (with indexation) & unlisted 10% (without indexation).
STCGBased on individual slabsBased on individual slabs

 

There is no change in Capital Gain Tax Rates from last year. Hence, the old rates will be applicable for FY 2021-22 also.

Note-Surcharge @ 15%, is applicable where the income of Individual/HUF unit holders exceeds Rs. 1 crore. Also, surcharge @10% to be levied in case of individual/ HUF unitholders where the income of such unitholders exceeds Rs.50 lakhs but does not exceed Rs.1 Cr. Further, Health and Education Cess @ 4% will continue to apply on the aggregate of tax and surcharge.

As you may be aware that during Budget 2018, LTCG was introduced again to Equity Funds. Hence, let me explain the same on how to calculate the LTCG on Equity Funds as below.

How to calculate LTCG on tax slabs & Equity Mutual Fund?

LTCG & STCG on Stocks & Mutual Funds (up to 31st January 2018)

Bought before 31st January 201810,000 stocks at INR 100
Sold within 365 days10,000 stocks at INR 130
STCGProfit INR 13015% STCG = INR 45,000
Sold after 365 days10,000 stocks at INR 150
LTCGHigher of a) or b)

a)Actual cost (i.e INR 100)

b)Lower of the below

-The highest price of 31st Jan 2018 (Rs 120)

-Actual selling price (INR 150)

(Assumed that the highest price on 31st Jan 2018 is INR 120)

10% LTCG on INR 1,20,000

(10,000*Rs 120) – INR 1,00,000

INR 20,000

LTCG & STCG on Stocks &  Mutual Funds(from 1st February 2018)

Buy on 1st February 201810,000 stocks at INR 100
Sold within 365 days10,000 stocks at INR 130
STCGProfit INR 3,00,0005% STCG = INR 45,000
Sold after 365 days10,000 stocks at INR 50
LTCGProfit INR 5,00,000LTCG = Actual profit- INR 1,00,000

=INR 4,00,000

10% LTCG on INR 4,00,000 

=INR 40,000

Mutual Fund Taxation FY 2020-21 – Dividend Distribution Tax (DDT)

As I pointed above, effective from FY 2020-21, DDT was abolished in the hands of Mutual Fund Companies. Hence, any dividend you receive will be taxable for you as per your tax slab.

At the same time, if your such dividend income is more than Rs.5,000 in a Financial year, then there will be a TDS @ 10%.

 

Mutual Fund Taxation FY 2021-22: DDT Rates

Individual

NRI’s

Equity Oriented Schemes

As per the Tax slabAs per the Tax Slab
Debt Oriented SchemesAs per the Tax slab

As per the Tax slab

 

Security Transaction Tax (STT) for FY 2021-22

Security Transaction Charges or STT is the charges or tax when you buy or sell securities (excluding commodities and currency) through a recognized stock exchange. Therefore,

The definition of securities involves the below products.

  • Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
  • Derivatives;
  • units or any other instrument issued by any collective investment scheme to the investors in such schemes;
  • Security receipt as defined in section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
  • Government securities of equity nature;
  • Rights or interest in securities;
  • Equity-oriented mutual funds

Therefore, whenever you buy and sell these securities through a recognized stock exchange, then you have to pay this STT.

Now let us understand the latest Security Transaction Tax (STT) applicable for FY 2021-22.

Security Transaction Tax (STT) Rates for FY-2021-22

Transaction TypeRates

Payable By

Purchase/ of equity shares (delivery Based)0.1%Purchaser/ Seller
Purchase of units of equity-oriented mutual fundNILPurchaser
Sale of units of equity-oriented Mutual fund 

(delivery Base)

0.001%Seller
Sale of equity shares, units of business trust, units of equity-oriented mutual fund 

(Non-Delivery Based)

0.025%Seller
Sale of an option in securities0.05%Seller
Sale of an option in securities, where the option is exercised0.125%Purchaser
Sale of future in securities0.01%Seller
Sale of units of an equity-oriented fund to the mutual fund0.001%Seller
Sale of unlisted equity shares & units of business trust under an initial offer0.2%Seller

 

TDS (Tax Deducted at Source) Rates for NRI Mutual Fund Investors 2021-22

Below are the applicable TDS rates for NRI Mutual Fund investors for FY 2021-22.

STCG Equity-The current TDS of 11.25% which was modified from 14th May 2020 to 31st March 2021 will I think continue for STCG-Equity Funds

STCG Other than Equity-The current TDS of 22.5% which was modified from 14th May 2020 to 31st March 2021 will I think continue for STCG-Other than equity.

LTCG Equity-The current TDS of 7.5% which was modified from 14th May 2020 to 31st March 2021 will I think continue for STCG-Equity Funds.

LTCG Other than Equity-The current TDS of 15% (for listed) and 7.5% (for unlisted) which was modified from 14th May 2020 to 31st March 2021 will I think continue for STCG-Other than equity.

 

Conclusion:-

# As per me, the Growth Option is the default and best option from now onwards for mutual fund investors.

# Suppose you are investing in Debt Mutual Funds and for short-term capital gains, there is no change at all in tax structure between dividend and Growth Option as both are taxed as per your tax slab. In fact, if you opted for the Dividend Reinvestment option, such dividends paid by Mutual Fund companies will be the first taxable as per your tax slab. Hence, there is no logic in opting for the dividend reinvestment option.

# Regarding Debt Mutual Funds with long-term capital gain tax, it is not wise to compare as the tax in case of growth option is 20% with indexation whereas dividend option is taxable as per your tax slab. The reason is it is hard to predict the indexation benefit and differs from case to case. However, to a certain extent, 0% or 5% tax bracket investors may opt for dividend option and benefit from this as in case of growth it is 20% with indexation. But for higher tax bracket individuals, it is better to opt for growth options.

# If you are an investor of equity mutual funds and the holding period is less than a year, then the dividend option is better for those who are under a lower tax bracket (less than 15%. If your tax bracket is more than 15%, then it is better to choose the growth option.

# If you are an investor of equity mutual funds and the holding period is more than a year, then obviously the growth option is the best one. Because up to Rs.1 lakh, there is no tax. However, in the case of dividends, it is taxed as per your tax slab.

Hence, the clear winner is a Growth option, and better to stick to it rather than opting for the dividend option and running behind saving a penny and entertaining TDS and tax filing issues.

Hope now you got the clarity related to Mutual Fund Taxation FY 2021-22 / AY 2022-23.

Article Headers (10)-min

What is information bias in investing?

Information bias is the tendency to evaluate information even when it is useless in understanding a problem or issue. Today, investors had much more information than before, however, is it all good information? Can this be used to make smart money decisions?

Through social media, we are now being bombarded with new information almost every hour and sometimes every few minutes. Are you one of those who feel research means checking reels on top 3 funds to buy? Checking Youtube videos to confirm your understanding of various investments? Following twitter handles or paying 199 per month for telegram groups to know what is the next multi-bagger? Social media stalking is not detailed research that provides you all the information you need to make a smart investment decision. 

Where you are following people online who agree with your viewpoints and speak the things you believe in - you are already following an information bias. 

INFORMATION BIAS IN INVESTING
You should ask yourself if some of the information you are getting is relevant at all. Information like daily NAV movement, 52 weeks high or low NAVs, best performing funds of the month, etc. is useless in our view. Should you buy or sell a fund based on its last 7 days or 30 days' performance? However, with interesting captions, they are made to look as if it is very important information that you should pay attention to. But mostly they are irrelevant but excites you into buying a particular fund purely on its return number or performance of the past few months. In many instances, investors will make investment decisions to buy or sell an investment on the basis of short-term movements in the share price. 

Likewise, for mutual fund investors, top stocks bought or sold by fund managers every month is mostly not relevant. When you are investing in mutual funds, you rely on professional fund managers to do the stock selection because you do not have their expertise or experience. Top stocks bought or sold by fund managers can be an interesting article on the internet but should you invest in Direct Equity shares based on what a Mutual Fund manager is buying or selling?

The input of information has increased tremendously, now we have people dancing and explaining financial concepts on the net where capturing that information is easy and fun, we may miss out on the crux of the whole thing when learning about finance i..e it is very personal to you. You need to understand what works for your risk profile and your goals before investing in purely basis blogs/videos and others.

HOW TO AVOID INFORMATION BIAS

  • Financial planning: Financial planning with clearly defined financial goals and investment plans to achieve different goals can help you avoid information bias. Make sure that you are committed to your financial plan.
  • Know the fundamentals of investing: Know what is important and what is not. You need to understand what will make your financial goals successful and filter out the unimportant information.
  • Do not track your portfolio on a daily basis: It is important to monitor your portfolio regularly, but you do not need to track it on a daily basis. Short-term price movements have no impact on long-term portfolio returns. If you track your portfolio on a daily basis, then you are likely to be prone to information biases. Remember why you invested and for what goals. You must invest in equity for the long term - so checking it every day is not going to help get higher returns.
  • Seek counsel before you react to information: Information that you get every day or every hour usually has no bearing on long-term portfolio performance. If you want, you can seek more information about investments, but seek the guidance of a financial advisor before you act on the information you have. We are SEBI registered investment advisors and can help you make sound investment decisions - you can reach out to us at iplan@wealthcafe.in, in order to help you make a financial plan for yourself. A lot of information you get daily may be totally irrelevant and can harm your financial interests, if you act on it without considering other factors.

Common Retirement Planning Mistakes

Retirement planning used to be a lot easier. You worked your whole life for the same company and retired at age 65 with a gold watch and a company pension.

Today it’s more complicated. Most people will change employers many times over the course of their career or work for themselves at some point. At the same time, life expectancy is increasing. On one hand, that means more retirement years to enjoy. But the flip side is that you also have more retirement years to fund.

Living a retired life without enough savings can really be a dreadful experience. If you and your spouse don’t want to be a burden on your children after retirement, it is best to start retirement planning early and stick to the retirement plan by all means.

Don’t make the mistake of relying on others – even if they are your own children – to take care of you when you have reached your twilight years. Why should you rely on others post-retirement when you lived all your life on your own terms?

To live a comfortable retirement life on your own terms, you need proper retirement planning and to achieve that you need to avoid these common mistakes.

IGNORING PRICE RISE
Inflation is a demon that comes down hard on anyone who ignores it. "Since retirement is a long-term goal, it is important to understand the impact of inflation on your financial goal
If you ignored inflation while doing the maths, revisit the numbers. Always take the real rate of return (rate of return minus inflation) while doing the calculation. Also, use a realistic rate of inflation. You can take an average of the past few years. Lastly, don't underestimate inflation. It's better to err on the side of caution.
The only investment that will help you beat inflation and still make a corpus is equity. So you need a part of it in your portfolio. You can not plan for your retirement 20 years away by parking money in FDs only. However, EPF is a great debt portion of your retirement corpus mix.

CASHING OUT EPF MONEY
Many people withdraw money from their provident fund account. This is wrong as instruments such as the Employee Provident Fund (EPF) have been designed to provide financial security after retirement. These are highly useful for retirement planning, especially due to their tax-free status.
It is not good to withdraw money from the EPF, even if it is to make a big-ticket purchase such as a house. Instead, it is better to dip into other savings; EPF should be only for post-retirement years.
Basic of Employee Provident Fund (EPF)
Lesser known facts about Employee Provident Fund (EPF)
Step by Step Process for EPF withdrawal
What Should You Do With Your Old Inactive EPF Account?
When can you withdraw your EPF?

DELAYING HEALTH INSURANCE
Medical expenses rise as a person ages. Many people don't buy individual health plans during their working life as they are covered by employers. This is not advisable as most employers give the cover only till you are employed with them.
You also have the option of porting the employer's policy to individual cover at retirement. But do not depend on group policies after retirement as employers keep changing insurers and so you may miss out on benefits accumulated in the earlier policy such as waiver of waiting period for pre-existing diseases.
It is good to buy an individual health policy early in life. It is not only cheaper but also helps you cover pre-existing illnesses after completion of the waiting period. Moreover, it covers you even after you leave the job or your company curtails the benefits under the group plan to cut costs.
Health Insurance: What You Need To Know During COVID
6 things to note before buying a Health Insurance
Things To Do After You Buy A Health Insurance
Is your employer’s Health insurance sufficient?
Health Insurance: Single Plan or a Family Floater Plan?

NOT PLANNING FOR CONTINGENCIES
Your long-term investments are not for meeting contingencies. Hence, all people, irrespective of age and employment status, must build a contingency fund. Ideally, your savings should guarantee you a lifestyle after retirement which is the same as you enjoyed in your working years. This involves high-level contingency planning as your income streams dry up as you retire.

NOT HAVING ENOUGH MONEY FOR EARLY RETIREMENT
Stress is nowadays burning out people at a young age, making them think of retiring early. We come across many people who want to advance their retirement age. But most of the time we advise them to delay the plan if they do not have enough funds to last their lifetime. Early retirement requires rigorous planning for meeting life's goals.

Compounding is a powerful tool (the longer the period, the more the money will grow). If you think you will start saving later when your income rises, you may not be able to save enough. Therefore, enlist a financial advisor, start immediately, evaluate the available savings and protection instruments, calculate the funds required and get down to executing the plan

NOT HAVING ADEQUATE INSURANCE
When a bread earner dies, the whole family suffers a setback. A life insurance policy can take care of the family's well-being in such a case. The question is, how much cover one should have?

The ideal figure is at least 10 times the annual salary. This will give the family a cushion of ten years to adjust to the new financial reality. For example, if your salary is Rs 12 lakh a year, the cover should be at least Rs 1.2 crore.
Another approach is calculating the human life value, that is, the present value of your future income. Don't forget to factor in liabilities such as home loans while doing the calculation.

Buy a term insurance policy as soon as you can. Buy online to save on premium. And do not forget to increase or decrease the cover as your liabilities change.

Conclusion

Retirement is the next great stage in your life, and it can be just as fulfilling and exciting as your younger years. It’s your opportunity to do what you want when you want, whether that means relaxing at home, traveling the world, or reinventing yourself in a new career.  No matter where you are on the retirement continuum, you have likely made mistakes along the way. By focusing on retirement planning now, you can feel more confident about fulfilling your vision, whatever it may be. If you don’t have enough saved, it is never too late to start planning.

In addition to avoiding the problem areas above, seek advice from a trusted financial advisor to help you stay—or get back—on track. We are SEBI registered investment advisors and can help you make sound investment decisions - you can reach out to us at iplan@wealthcafe.in, to help you make a financial plan for yourself. A lot of information you get daily may be totally irrelevant and can harm your financial interests, if you act on it without considering other factors.

RBI Retail Direct – Invest in Government Bonds online

Using the RBI Retail Direct platform, we can now invest in Government Bonds online. In the month of February 2021, RBI announced that it will allow retail investors to directly buy and sell Government Bonds online. Now through the RBI Retail Direct scheme, we can invest in Government Bonds online.

The launch date of the portal is not yet decided. According to the notification, “the date of commencement of the scheme will be announced at a later date”.

These are the securities which investors can invest: 

  1. Government of India Treasury Bills 
  2. Government of India dated securities 
  3. Sovereign Gold Bonds (SGB) 
  4. State Development Loans (SDLs)

ELIGIBILITY

Retail investors, as defined under the scheme, will be able to register under the Scheme and maintain an RDG Account, if they have the following:

i) Rupee savings bank account maintained in India;

ii) Permanent Account Number (PAN) issued by the Income Tax Department;

iii) Any OVD for KYC purpose;

iv) Valid email id; and

v) Registered mobile number.

Non-Resident retail investors eligible to invest in Government Securities under Foreign Exchange Management Act, 1999 will also be eligible under the scheme. The RDG account can be opened singly or jointly with another retail investor who meets the eligibility criteria.

SCOPE OF THE SCHEME

‘RBI Retail Direct’ is a comprehensive scheme that will provide the following facilities to retail investors in the government securities market through an online portal:

i) Open and maintain a ‘Retail Direct Gilt Account’ (RDG Account)

ii) Access to primary issuance of Government securities

iii) Access to NDS-OM

WHAT ARE THE SERVICES OFFERED?

The registered investors can opt for the following investment services: 

a. Financial Statement: The link provides transaction history and the balance position of securities holdings in the Retail Direct Gilt Account. All transaction alerts will be sent by e-mail or SMS. 

b. Provision for nominations: You can fill up and upload the nomination form in the appropriate format, which must be signed. A maximum of two nominations is allowed. 

c. Pledges and liens: Securities held in the RDG Account will be available for pledge/lien.

d. Transfers of Gifts Retail Direct: Investors will be able to give government securities to other Retail Direct Investors through an online platform. 

e. Grievance redressal: Any query or grievances related to the ‘Retail Direct’ Scheme can be raised on the portal which will be handled/resolved by Public Debt Office (PDO) Mumbai, RBI.

REGISTRATION:

Investors can register on the online portal by filling up the online form and using the OTP received on the registered mobile number and email ID to authenticate and submit the form. On successful registration, a ‘Retail Direct Gilt Account’ will be opened and details will be given through SMS/e-mail to access the online portal. The RDG account will be available for primary market participation as well as secondary market transactions on NDS-OM.

PROCEDURE

After registering on the online portal, retail investors will need to authenticate themselves by using OTP (one-time password) received on their registered mobile number and email address. They will need to submit the KYC document to open the RDG Account.

BUYING AND SELLING

During the bidding, the participation and allotment of securities will be as per the non-competitive bidding scheme of the RBI. The regulator has designed a non-competitive bidding scheme for non-institutional small buyers.

Once investors make the payments, RBI will credit the securities to their RDG Accounts.

To buy and sell securities in the secondary market, the procedure is similar to buying and selling of shares.

Before the start of trading hours or during the day, the investor must transfer funds to the designated account of CCIL (Clearing corporation of NDS-OM) online.

Based on actual transfer, a funding limit (buying limit) will be given to the investor for placing ‘buy’ orders. At the end of the trading session, any excess funds will be refunded.

FEES AND CHARGES

There are no fees charged for opening or maintaining the RDG account nor for Submitting bids in the primary auction. However, the registered investor will have to pay fees for payment gateway, etc. that are applicable.

However, do remember one thing that even though in such Government securities, default or downgrade may not be there, they are highly sensitive to the interest rate movement based on the time horizon of maturity of the bond.

 

Hence, investing in such Government securities does not mean they are safe. If you buy today and try to sell tomorrow (before maturity), then the risk of interest rate movement will be there. DO REMEMBER THAT INVESTING IN BANK FIXED DEPOSIT IS DIFFERENT THAN INVESTING IN GOVERNMENT BONDS. Understand the features and how they fluctuate and accordingly based on your need, you can buy. 

Where you do not wish to invest directly in government bonds as liquidity can be a concern here. Please note that RBI bonds are not as liquid as equity shares (where you are able to sell your equity shares anytime you'd like), there could be a situation where you do not find a buyer immediately, in that case, you must be ready to hold on to bonds for a longer duration. So where you want exposure to government bonds but not directly, mutual funds are the way forward for you.

How to retire with 5 cr on a salary of 1 lakh a month

We all have our aspirations and dreams for the golden years of our life. We want to have the freedom to do whatever we may want and hope to fulfill all the desires that were not fulfilled during the course of working life. It will only be possible if we have planned it well and enough funds are available to help us live our dreams. Thus, plan today for a beautiful post-retirement life.
You have been saving diligently for retirement. That's good. But in all likelihood, you have just a vague idea about what you want, not a concrete plan.

For example, many of you think that whatever you save during your working life will be sufficient for your sunset years. But have you accounted for the demon that goes by the name of inflation, which nibbles away the value of your money 24X7? Probably not. This means you will not save enough to be able to continue your present lifestyle in old age.
The first question that you may have when it comes to your retirement is

Where to invest for retirement?

When it comes to the accumulation of retirement corpus, people generally play safe and go for fixed interest-bearing risk-free instruments like fixed deposit, or PPF which at best give 8% return (in current market conditions, you are making only 7% there). But as retirement planning is for the longer term, one should take equity exposure to get a better return, which will help you accumulate a bigger corpus by retirement.
Equity can give you a 15% return on an average where you stay invested in it for a longer period of time to reduce the risk of volatility. A portion of the equity in your portfolio is a must. It is where wealth creation happens and it is what will also help you to achieve your corpus. We do not mean to suggest that you should invest 100% in Equity or 100% in Debt, you should invest in asset classes based on your risk profile and goals. Retirement being a long-term goal, one can invest some amount for it in Equity to enjoy the returns and manage the risk of it as well.

Let's understand How do you Invest - Basic Actionable Points?

  • Invest in Debt for Short term goals
  • Invest in a mix of Debt & Equity for long term goals (more than 3 years)
  • Now, this mix of debt and equity is determined based on your risk profile. You can take your risk profile test here - Risk Calculator

This test will help you determine how much risk you are comfortable taking and guide you to invest based on that, rather than investing all your money in equity and having sleepless nights.
You can read more about this here: How should you invest


For the purpose of understanding this working and your goal to achieve a corpus of 5 crores with an income of 1 lakh, let's assume that our investor’s profile is a GROWTH profile and he is going to invest in equity and debt. His Debt-Equity Mix will be 30% debt and 70% equity.

How much you need to invest every month to accumulate Rs 5 crore

Now let's come to the main question - HOW MUCH?
The amount you need to invest to accumulate a corpus of Rs 5 crore will depend on your current age and the age that you want to retire. (i.e. your time to retire)
For example, (where your risk profile is a growth profile) and your current age is 25 years and you want to retire at the age of 55 years then you need to save Rs 11,694 every month for the next 30 years to accumulate Rs 5 crore. This is assuming an annual return of 12.90% (which is derived based on the asset allocation of your risk profile of GROWTH).


The required amount will go up to Rs 13,335 if you start one year later at the age of 26. Similarly, if you delay it by five more years, then you will be required to invest Rs 22,656 every month to accumulate the same amount. The required amount increases drastically with a delay in investment as the effect of compounding reduces.


Here is an illustration of how much you need to save every month to accumulate Rs 5 crore by retirement assuming that your investment grows at an annual rate of 12.90%.

However, if you are young and starting out, it is important to know that you do not need a lot of investments to reach 5 crores - just INR 11,000 is good to begin with, which is not a lot of money - given the time and funds involved. It definitely seems like an achievable goal. 

Worth mentioning here is that you also need to create an emergency fund and your insurance as well as medi claim along with your regular investment for retirement so that your retirement corpus remains untouched in case of emergencies like job loss, hospitalization, or any pandemic that we are witnessing now, which can create potential risk to employment. Also, you may have many goals that may come and go as your life goes o, but your retirement will always be THE MOST important goal.

Do not forget that 'Retirement is that one goal you will never get a loan for, you have to plan for it all by yourself'



Wealth Cafe Financial Services Pvt Ltd is a AMFI registered ARN holder with ARN -78274.

Wealth Cafe Financial Services Pvt Ltd is a SEBI registered Authorised Person (sub broker) of Motilal Oswal Financial Services Ltd with NSE Regn AP0297087003 and BSE Regn AP0104460164562.

 

Copyright 2010-20 Wealth Café ©  All Rights Reserved