Skip to main content

Question Traditional Investment Methods

Both Property And Equities Work Over The Long Term

Intuitive thinking need not always be right. Counter-intuitive thinking can also be right… sometimes so very right that you wonder if that wasn't the intuitive thing to do. Take Steve Jobs. Instead of launching mobile phone models that cater to every group, he launched one phone - the iPhone - for everyone. Apple is world No 3 in Smart phones today.

A lots of conventional thinking is flawed. But we continue thinking that way, since it is a "comfort zone" for us. Moreover, everyone around us, our family and peer group also endorses it. The same applies to the way we handle our personal finances too. We continue to labour under the many myths and misconceptions, which have become accepted mainline tenets today.

Often, when we face a financial shortage, we wish for higher paying jobs. Conventional thinking says that if one changes one's job for abetter paying one, financial issues should be sorted out. However most fail to realise, more often than not, it is the wrong handling of current finances that leads to financial shortages. Even if the new job assures better inflows, a spirational thinking will lead to spending more money for a better lifestyle. There will be always be new and better avenues for outflows as long as the the basic problem of handling money in a prudent manner is not addressed.

CLARITY ON PROPERTY

Another advice that elders in the family dispense to the young is - one should buy property now since property prices will always be rising. Best to buy it now than later, they say.

Long-term growth of property is between six and 10 per cent, depending on which city the property is located. Expectations have risen as people look at the returns on property in the past six years.

Some years saw property prices rising by 20-30 per cent yearly. But that is not sustainable. In equity or equity mutual funds (MFs), too, the returns were in excess of 50 per cent in some years. But it cannot always grow like that. The long-term average will catch up.

So, it is a myth that property will become unaffordable in future. As long as you are investing your surpluses and earning over eight per cent yearly, you will be able to save adequately to meet any escalation in future. This way, one will be keeping the options open and at the same time, can buy a home at a location of choice, in the future.

Again, property investments are seen as long term investments and equity-oriented investments are looked at as short-term investments. The fact is that both are good investment avenues. Which asset class to invest and in what mix depends on an individual's personal requirements. Equities, over a period of time, have given very good long-term returns.

The Sensex has given a compounded return of 18 per cent annually in 31 years. There is no reason to think equity is not a good long term instrument. In fact, there is no other investment instrument which can beat these returns. Property investments are favoured due to their higher emotional appeal and the fact that it is a tangible asset. You can walk into your home or see the land. Equity holdings today are not even physical paper, which you can hold; they are entries in your demat account. Hence, psychologically, equities do not hold the sway that property does. Also, due to the fact that equity shares can be bought and sold very easily, it does get bought and sold - sometimes several times within a day. That does not mean it is the rightthing to do.

There are long-term equity investors who have built fabled corpus for their retirement from fairly modest beginnings.

THE ARITHMETIC

The other well-rooted belief is that one should buy property to save taxes. Let us get this straight. Saving taxes is not an objective by itself. Getting good after-tax returns, meeting goals and having the cash flows to meet one's requirements over time are the more important and relevant concerns. Yet, so many buy property to save taxes.

How much can one save? In the highest tax slab, the savings for a residential home on `1.5 lakh of interest payment is `46,350 per annum. Note that your interest outgo may be much higher, but your benefit will be restricted to this amount only. While saving this amount is fine, one takes on a long-term liability. Even rent is tax-deductible.

A rented house, though inconvenient in some ways, is not a liability if one wants to shift to another city. Many people still say they would prefer to pay an equated monthly instalment (EMI) and create an asset instead of paying a rent to someone else. The problem with this is that the EMI will be many times higher than the rent and will have to be sustained even if one moves out of that city.

We accept what we hear as gospel truth. It makes sense to validate that against the touchstone of your wisdom, before accepting and acting on it. Who knows, you may break some rules and come out smelling of roses, like Steve Jobs!

Saving taxes is not an objective by itself. Getting good after-tax returns and meeting goals are relevant concerns. Yet, so many buy property to save taxes

Popular posts from this blog

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now