The Budget has announced a huge bonanza for tax-payers and it’s time you sow the hard-earned money where it would bear fruit
NOW THAT the finance minister has put more money in your hands by restructuring the income-tax slabs, it’s time you take charge of the finance ministry of your house. An yearly saving of Rs 45,320 (for an individual with an income of Rs 5 lakh) may look tempting and increase your urge to spend but some smart and calculated moves can help you grow that money. Here is a lowdown on how you can maximize your hard-earned money through efficiently using different financial instruments to your advantage.
UNIT-LINKED INSURANCE POLICIES (ULIPs)
ULIPs can be the best investment option for those looking for a single-window option of investment, insurance and tax efficiency, say analysts. “Considering the fact that universally the risk appetite of individuals is low, ULIPs are the ideal entry points into the stock market indirectly and for long tenures in a disciplined way. It acts like a Systematic Investment Plan (SIP). Besides, ULIPs work out to be more profitable in the long run as compared to mutual funds because they are only front-end loaded. Even though the front-end loads in initial year are high, it tapers in the long term, making them work better. The flexibility and liquidity of ULIPs makes it a potent product that offers peace of mind with risk cover and scope for asset creation through investments.
Mutual Funds
All investments should be based on one’s investment objective, risk profile and time horizon. And analysts feel that one should do an asset allocation to multiply earnings. For individuals with a short-term perspective, arbitrage funds is a better option than parking funds in a savings bank account. They are also tax-free. Thus, your money is growing not depreciating which is the case with savings account. Analysts say that with the rate of inflation more than the interest rate given by savings bank account (3.5%), it makes all the more sense to invest in arbitrage funds, which on an average give you 9-9.5% returns.
You can also allocate a part of the money (say 30%) to income funds. However, the best bet is long-term investment through SIPs. A judicious mix consisting of combination of these three financial products can be an effective strategy. If you are young and less than 35 years of age, you should put 50-60% in SIP, since you can afford to take risk at a younger age. However, there is no set formula for MF exposure and this would depend on the individual investor’s risk profile. As an investor you may prefer to change from one risk class to another to get a fit-in with your overall financial plan.
STOCK MARKETS
The stock market volatility may have been a cause for concern in the past few months, but intelligent investment can definitely help you reap money—short-term and long-term. Analysts say the revised slabs can be employed to earn handsome long-term tax free returns by the individual through investments in equities. Further, the current downturn in the markets provides a good opportunity.
This is an good time for the investors in terms of valuations. The macro story is also selling well. In terms of sectors, it is time to turn towards a combination of value and growth investing. Broadly, we recommend sectors like IT and pharmaceuticals. In terms of domestic consumption plays, we prefer the banking, telecom and automobiles.
Analysts say the markets have taken a cue from the Budget and US recession and have posted declines. At present the markets trade at 13.2xFY2010E earnings, which look quite attractive. As the current earning yield in the market is higher, the bond yield (adjusted for taxes) provides a case for minimal declines from hereon.
TAX PLANNING
Besides choosing any financial instrument, making a tax-plan for yourself is also important. Analysts say this Budget was unique as it lowered the tax burden on people, putting more money in their hands, while there were no proposals to promote savings and investments. Since no new investment incentives are proposed, individuals have the same avenues for tax planning as last year — housing loan, deductions under Section 80C, medical insurance etc. However, I would recommend to individuals not to divert the entire incremental post tax earnings towards consumption.
So, if you’re staying in a rented accommodation and do not own a house, consider taking a housing loan and use the extra money from the tax cuts towards the EMI. Alternatively, if you’ve not utilized limits under Section 80C, that should be funded to its maximum limit. “With increasing cost of healthcare, some money should be utilized for buying comprehensive life and medical coverage for family and parents.
NOW THAT the finance minister has put more money in your hands by restructuring the income-tax slabs, it’s time you take charge of the finance ministry of your house. An yearly saving of Rs 45,320 (for an individual with an income of Rs 5 lakh) may look tempting and increase your urge to spend but some smart and calculated moves can help you grow that money. Here is a lowdown on how you can maximize your hard-earned money through efficiently using different financial instruments to your advantage.
UNIT-LINKED INSURANCE POLICIES (ULIPs)
ULIPs can be the best investment option for those looking for a single-window option of investment, insurance and tax efficiency, say analysts. “Considering the fact that universally the risk appetite of individuals is low, ULIPs are the ideal entry points into the stock market indirectly and for long tenures in a disciplined way. It acts like a Systematic Investment Plan (SIP). Besides, ULIPs work out to be more profitable in the long run as compared to mutual funds because they are only front-end loaded. Even though the front-end loads in initial year are high, it tapers in the long term, making them work better. The flexibility and liquidity of ULIPs makes it a potent product that offers peace of mind with risk cover and scope for asset creation through investments.
Mutual Funds
All investments should be based on one’s investment objective, risk profile and time horizon. And analysts feel that one should do an asset allocation to multiply earnings. For individuals with a short-term perspective, arbitrage funds is a better option than parking funds in a savings bank account. They are also tax-free. Thus, your money is growing not depreciating which is the case with savings account. Analysts say that with the rate of inflation more than the interest rate given by savings bank account (3.5%), it makes all the more sense to invest in arbitrage funds, which on an average give you 9-9.5% returns.
You can also allocate a part of the money (say 30%) to income funds. However, the best bet is long-term investment through SIPs. A judicious mix consisting of combination of these three financial products can be an effective strategy. If you are young and less than 35 years of age, you should put 50-60% in SIP, since you can afford to take risk at a younger age. However, there is no set formula for MF exposure and this would depend on the individual investor’s risk profile. As an investor you may prefer to change from one risk class to another to get a fit-in with your overall financial plan.
STOCK MARKETS
The stock market volatility may have been a cause for concern in the past few months, but intelligent investment can definitely help you reap money—short-term and long-term. Analysts say the revised slabs can be employed to earn handsome long-term tax free returns by the individual through investments in equities. Further, the current downturn in the markets provides a good opportunity.
This is an good time for the investors in terms of valuations. The macro story is also selling well. In terms of sectors, it is time to turn towards a combination of value and growth investing. Broadly, we recommend sectors like IT and pharmaceuticals. In terms of domestic consumption plays, we prefer the banking, telecom and automobiles.
Analysts say the markets have taken a cue from the Budget and US recession and have posted declines. At present the markets trade at 13.2xFY2010E earnings, which look quite attractive. As the current earning yield in the market is higher, the bond yield (adjusted for taxes) provides a case for minimal declines from hereon.
TAX PLANNING
Besides choosing any financial instrument, making a tax-plan for yourself is also important. Analysts say this Budget was unique as it lowered the tax burden on people, putting more money in their hands, while there were no proposals to promote savings and investments. Since no new investment incentives are proposed, individuals have the same avenues for tax planning as last year — housing loan, deductions under Section 80C, medical insurance etc. However, I would recommend to individuals not to divert the entire incremental post tax earnings towards consumption.
So, if you’re staying in a rented accommodation and do not own a house, consider taking a housing loan and use the extra money from the tax cuts towards the EMI. Alternatively, if you’ve not utilized limits under Section 80C, that should be funded to its maximum limit. “With increasing cost of healthcare, some money should be utilized for buying comprehensive life and medical coverage for family and parents.
