Adding a Silver Lining…

Ajay : Last year, equities gave great returns. Especially small caps gave a return of 59% in one year, whereas gold and silver gave negative returns. I am going to shift all my investments to small caps for the next one year.

Niraj : That would be the most foolish thing to do. You know that every year, a different asset class would do well. The last year’s number 1, could be this year’s bottom performer. The small cap which was a top performer in 2017, was the bottom performer in 2018.

Ajay : Oh yes. You are right. So then how do we come to know which asset class would perform in next one year ?

Niraj : We can’t come to know that. That’s why we should diversify our portfolio. We need to have equities, debt, gold, silver, real estate everything in our portfolio in the right proportion.

Ajay : Ok. So I have diversified my portfolio across equities and gold. But why Silver ?

Niraj : Silver is both noble metal and an industrial metal. Apart from Jewelry, it has huge application across various industries like Electronics, Catalysts, Bearings, Medicine, Water Purification etc.

In Near Future, the demand of silver will be further increasing because of rise in 3 industries :

  1. Electric Vehicles
  2. Green Energy – Solar panels
  3. Semiconductor chips – 5G Technology
Source : Bloomberg

These 3 industries are expected to drastically increase the demand of silver by almost 8-10 times in next 10 years. And thus, Silver can add a silver lining to the portfolio.

Ajay : So are you suggesting that I should buy silver bars or silver coins ?

Niraj : You can buy them. But you would agree that holding physical silver has its own challenges – Purity, Storage cost, maintenance (silver needs regular cleaning) etc.

Ajay : So what is the way out ?

Niraj : I would suggest that you invest in a Silver Fund. This way, you will be able invest in silver, you will get the benefits of silver, but will not face the challenges of physical silver.

Ajay : O wow !! Do they have Silver Mutual Funds ?

Niraj : Fortunately yes. SEBI has recently given approval for Silver Mutual Funds. And In my opinion it can be a great addition to your portfolio.

Ajay : Thank you so much Niraj for clearing my doubts.

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

#ProfessorBajaj

#NidhiInvestments

#WealthCreation

#Silver

“Similar” Does Not Mean “Same”

Sameer : Hey Niraj, are you applying for this IPO of XYZ Ltd ?

Niraj : No Sameer. By the way, what is the business of this Company XYZ ?

Sameer : I have no idea. But I believe the stock price will increase. Lot of my friends are saying that.

Niraj : Don’t Fall prey to Herd Mentality Sameer. Many a times people mindlessly invest in stocks without knowing anything about their business and then get brutally punished for it.

Sameer : I don’t believe this. Can you give me any examples ?

Niraj : There are Several Examples.

Example 1 : When lockdown-1 started in 2020, people started using zoom meetings extensively. As a result, people blindly started buying stocks of “Zoom Technologies Inc.” whereas the company which owned Zoom Meetings software was called “Zoom Video Communications”. The Stock price of “Zoom Technologies Inc.” increased just because it had “zoom” word in its name (although this company wasn’t remotely connected to zoom meetings company). The stock price of “Zoom Technologies” fell from USD 20 to zero in no time, as soon as people realised that it is not the right company.

Example 2 : In lockdown-2, India was facing shortage of oxygen cylinders in hospitals. People blindly started buying stock of company called “Bombay Oxygen Corp Ltd” which was remotely not connected to production of oxygen cylinders. The stock price fell by 50% as soon as people came to know this.

Sameer : Oh My God !! This is So true and Shocking. But isn’t this the mistake of Companies also to keep misleading names ?

Niraj : Let us assume that this is the mistake (or ploy) by the companies to trap the investors. Still, is it not investor’s responsibility to do some basic research on the stock, before investing in it ?

Sameer : Doing in depth research is not everyone’s cup of tea, Niraj. What should a layman investor do ? They get confused between similar names and fall for it.

Niraj : Sameer, just because it looks similar or sounds similar, does not mean it’s the same. One has to go deeper before investing hard earned money. If you are not an expert in it, get professional guidance. But Don’t put your hard earned money blindly.

Sameer : You are absolutely right Niraj. We can’t afford to invest blindly and then blame others. We have to either do our homework well or get a trusted advisor.

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

#ProfessorBajaj

#NidhiInvestments

#WealthCreation

The Risk of Living Dead

I know the Title Sounds Scary (almost like a horror film). But this article could prove to be of utmost importance to almost all of us.

In our Basic Financial planning, we mainly focus on 3 risks

  1. Risk of Dying Early – We Buy a Term Plan to cover this risk.
  2. Risk of Living Too Long – We create a sufficient Retirement Wealth for ourselves to cover this risk.
  3. Risk of huge hospital Bills – We Cover ourselves with Mediclaim (Or Health Insurance) to cover this risk.

Apart from this, there is something called a “risk of living dead”, wherein a person is Alive, but he / she is in such a state that they cannot work and cannot earn any income. In such cases, neither they get money from their term plan nor health insurance (as health  insurance only reimburse hospital expenses).

Such situation may occur due to 2 reasons

  1. Accident –  Mr. John meets an accident and becomes handicapped. He is not able to work and his income stops.
Silhouette of handicapped Man sitting on wheelchair in front of a large  panoramic window in hospital,He is sad and lonely. Stock Photo | Adobe Stock

2. Critical Illness – Ms. Nazma develops a critical illness (like Cancer, Brain Tumor etc). She is not be able to work and earn similar income as earlier.

Guiding you through Brain Tumor
A Sick Young Woman with Stock Footage Video (100% Royalty-free) 25746680 |  Shutterstock

Both these situations are termed as “The Risk of Living Dead”.

How do we manage the Financial risk associated with this?

  1. Mr. John could have bought an accident cover policy. This policy would cover not only accidental death, but also cover Permanent Total Disability, Permanent Partial Disability etc due to accident. It would give a lumpsum amount to Mr. John in case of a mishap due to accident. This Lumpsum amount can help to supplement the income that Mr. John is not able to earn now. The cover amount should be ideally 10 times of the annual income of Mr. John.
  • Ms. Nazma could have bought a Critical Illness Cover Policy. This policy would cover all the major critical illnesses. It would give a lumpsum amount to the policyholder on the diagnosis of the critical illness. This Lumpsum amount can help to supplement the income that Ms. Nazma is not able to earn now. As soon as the amount is paid, the policy ceases. The cover amount should be ideally 10 times of the annual income of Ms. Nazma.

How to Choose the Right Company and Policy ?

There are several insurance companies which offer accident cover and critical illness policy . Below Factors should be considered before buying the policy :

  1. Scope of Coverage – What all Critical illnesses are covered, what all disabilities are covered.
  2. Exclusions – Are there any exclusions ?
  3. Claim Settlement Ratio
  4. Premium
  5. Ease of Service

While covering “The Risk of Living Dead” is extremely important, it could be a good idea to seek professional guidance if there is a confusion. The biggest mistake would be to procrastinate the same. The people who are suffering from these, had never thought in their dreams that this could ever happen to them.

Its always better to be safe than sorry !!

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

Why Most Start-ups Fail ?

We see a deluge of Startups coming everyday. Most of them follow a business model, wherein

  1. A group of youngsters come up with an idea,
  2. Present That idea to a VC (Venture Capitalist) to get Funding.
  3. Use the VC money to offer discounts to gain customers at a fast pace.

Most of the Startups you see, grow their business by offering discounts as compared to your neighbourhood vendor.

But they are doing so, at the cost of burning VC money. They are incurring huge losses. Interestingly, many a times their purpose is not to run the business. Most of them just want to build customer database, sell away the business to someone and run away.

The reason for failing is very simple. They are not gaining customers because of better quality of products or services. They are gaining customers by offering artificial discounts, which cannot be offered lifelong.

The day they remove discounts and start offering at market price, they start losing customers. Their only hope is, your neighbourhood vendor doesn’t survive till that time, so that they can monopolize.

Now the question is, whether this situation will be desirable for customers and investors.

Sane Customers and Investors will always look out for businesses that follow a sustainable business model.

Other than this, there are few more reasons, why most of these Startups fail ?

  1. Chaar Din Ki Chaandni : Their importance grows during particular crisis situation (Example Demonetisation, Lockdown etc). But once things are normal, their importance diminishes.
  2. No Customer Service : Many of them dont really bother about serving their customers well. This is because they see new customers coming in every day. This ignorance to customer service deprives them of loyal customers.
  3. Backstabbing the Customer: Some of them try to lure customers by offering freebies or low costs. But behind the scenes, they sell the crucial data of the customers which results in fraudulent transactions. This bursts their image overnight. Most of the discount brokerage houses fall in this category.
  4. Copy Cats with No Sharpness: Most of them just want to copy someone else and try to gain customers by selling at loss. But they do not have any competitive edge, and thus they fail.
  5. Doing it Just for Fun: It sounds counterintuitive, but many of them DON’T WANT to build a successful business. They just do it for thrill at the cost of VC money.
  6. Looking For Shortcuts: Some of them want to be an overnight success. There are companies who have become successful over 10-15-20 years. But if you look for shortcuts, you are most likely to fail.

It is definitely encouraging to see that the youth of India wants to become entrepreneurs. We need more entrepreneurs in the country. But to become a successful entrepreneur, you need some basic skills, a long term mindset and proper guidance. It could be a good idea to look out for an entrepreneurship mentor who can handhold you in your journey to build a successful business.

We look forward to your valuable comments and feedback.

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

#ProfessorBajaj

#Nidhi Investments

#KnowledgeCircle

Johny Johny No Papa

Avinash : No Dude, My Father Does not Allow me to Invest in ELSS. He says he has always invested in PPF and it is the best.

Niraj : He is right Avinash. But we need to Move ahead with times. PPF was the best investment once upon a time. But now we have better options available.

Avinash : Can you please explain this ? I need to talk to my father regarding this.

Niraj : Till 1999, PPF interest rates were 12% p.a. If an instrument was giving you 12% returns, then obviously it becomes a no-brainer and one would invest in it. But From 1999 to 2020, the PPF interest rates have been falling. Now they are at 7.1%. Also, even if someone had invested Rs. 1 Lakh when the interest rates were 8%, this year they will receive interest of 7.1% only.

Avinash : Thats pretty shocking. But 7.1% is also somewhat good na. Bank FD is even lower than that.

Niraj : Absolutely right. Thats why I am not even recommending you Bank FD. The problem is, in future, PPF interests may further go down and we may even see interest rates of 5-6% on PPF.

Avinash : Oh My God !! That would be too low. Will talk to my father about this. But he is pretty against the equity markets. He says, they are risky.

Niraj : He is right. Equity markets are risky When,

1. You invest in them for short term

2. You invest in Stocks without research.

But in ELSS, there is a fund manager who chooses stocks after thorough research. Also, if you invest in ELSS for more than 15 years, the volatility is removed and you create more wealth than PPF.

Avinash : But in ELSS, the maturity is only 3 years.

Niraj : No. The lockin gets over in 3 years. But you can very well stay invested for 15 years (the way you stay invested in PPF for 15 years).

Avinash : This makes sense. I will talk to my father about this and tell him that he is wrong.

Niraj : He is not wrong Avinash. Its just that things have changed and he is not able to keep up with the new opportunities. He needs your help.

We look forward to your valuable comments and feedback.

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

#NidhiInvestments

#ProfessorBajaj

#ELSS

Disclaimer : Mutual Fund investments are subject to Market Risks. Please read offer documents carefully before investing.

Tu Doctor Hai Na ?

Imagine a Cab-Driver who keeps watching market movements while driving. Would you be comfortable riding in this car ? Eventually, he will be out of business.

Imagine a Doctor who keeps doing intra-day trading while talking to his patients. Would you be comfortable getting treated by him ? Eventually, his patients will start looking for another Doctor.

Lets focus on our Karma I.e. our core competency. Lets outsource our non-core activities to the experts.

If we try to become a Jack-of-all, we will be Master-of-None.

We look forward to your Valuable feedback.

We look forward to your valuable comments and feedback.

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

#ProfessorBajaj
#NidhiInvestments

Whom Are You Punishing ?

Story 1

April 2020

Discussion between Manoj (Client) and Niraj (His Advisor).

Manoj (Shouting): Why Didn’t You inform me that the markets are going to fall ? I would have booked some profit.

Niraj : Nobody can predict such short term movements Sir. And such falls are temporary. We will soon see recovery in next 12-18 months. If Possible, we should invest more at these levels.

Manoj : I don’t know all that. As an advisor, you are supposed to predict all this. I am unhappy with your services. My Investment of Rs. 10 Lakhs has become Rs. 8 Lakhs due to your ignorance. I am not going to invest a single rupee more.

August 2020

Manoj : I can see that the markets have risen. My Rs. 10 Lakhs is now back to Rs. 10.10 Lakhs. Please redeem my investments as soon as possible. I don’t trust the markets nor I trust you anymore.

Niraj : If we can stay invested for another 6-8 months, we can see good growth.

Manoj : No Way. I just don’t want to listen to you anymore. Just do as told.

Niraj : No Problem Sir. We will redeem your investments.

December 2020

Manoj (Crying): If I had stayed invested, my Rs. 10 Lakhs would have become more than Rs. 14 Lakhs in 4 months. In an attempt to punish my advisor, I ended up punishing myself.

Story 2

Mr. Harish Wanted to buy a health insurance plan for his family. His Wife was having some medical history. Thus, the insurance company gave a counter offer to cover Mr. Harish and the two kids.

Listening to the counter offer, Mr. Harish Got agitated and he asked the company to cancel his proposal and refund his money.

Harish : How dare they deny my wife’s health insurance proposal?

Niraj : Sir, insurance companies cover only standard lives. They cover slightly substandard lives at higher premium and if it is a more risky case, they can deny.

Harish : Is this the way they treat their customers ? I don’t want to buy health insurance from them.

Niraj : Ok Sir.

Three months later, Mr. Harish met an accident and ended up paying Rs. 1.60 Lakhs towards hospital bill. If he had taken the counter offer, at least other 3 members would have been covered. In an attempt to punish the insurance company, he ended up punishing himself.

Story 3

Year 2015 : Mr and Mrs Singh bought their first health insurance policy at the age of 58. By this time, Mr. Singh had already developed some health conditions and there was a 48 months waiting period in the policy for pre-existing diseases.

Year 2017 : Mr Singh had a hospitalisation related to his pre-existing diseases. Health Insurance company rejected the claim as it was a pre-existing disease and had not completed the required waiting period.

Mrs Singh Got Angry. She asked the agent to close the policy immediately and get a new policy for them. The agent also didn’t bother to tell her the repercussions. He got them a new policy with fresh 48 months waiting period.

Year 2020 : Mr Singh again had a hospitalisation. This time again it was declined by the new health insurance company as the new policy had still not completed the 48 months waiting period. Had they stayed in the same policy, they would have got the second claim of 2020 settled. 

In all the above cases, we see a common pattern. The emotions take over logic. The urge to punish someone, compels the person to take some action. But as the action is based on anger (and not logic) it harms the person himself than anyone else.

Lets remember Friends. It is natural to get angry when things don’t go our way.

But when you are taking the action, ask this question to yourself

“Whom am I punishing?”

Is it the Insurance Company ? Is it the Advisor ? Or is it you and your Family ?

Lets Ensure that, in an urge to punish the insurance company or the advisor, we are not putting our families to risk.

We look forward to your valuable comments and feedback.

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author)

#NidhiInvestments

#ProfessorBajaj

#SIP

#HealthInsurance

Markets at 47K !! What to Do??

“Oh My God!! Did You see the Sensex?? It has crossed 47k!! These are all time high levels. I am getting scared. Looks like I should redeem all my investments.” Said Sameer, a 34 years Old IT Professional.

“Yes, it has crossed 47k. But what makes you scared? And Why Would you want to redeem?” Asked Niraj, his friend.

Sameer : Aren’t you scared ? This is an All-Time-High that the market has hit.

Niraj : No, I am not scared. And lets re-frame it. Its not “All-Time-High”. Its “Till-Date-High“.

Sameer : What’s the difference ?

Niraj : If you observe the markets from last 30-40 years, they have always been making higher tops and higher bottoms. So whenever people exited thinking it is “All-Time-High”, market proved them wrong by making a new high. Let me give you some examples :

1. In January 2000, The Sensex hit a high of 5721 and then it fell to 2600 levels in Sep 2001. Thus, when the markets again crossed 5721 and hit 6000 in Jan 2004, many people thought that this is an “All-Time-High” and sold their stakes, thinking that they will buy again when it falls below 5721 levels.

2. Unfortunately (or fortunately), the market did not fall. On the contrary, it rallied upto 21,000 points in Jan 2008. This was where the markets fell, but still the bottom did not touch the previous “All-Time-High”. It fell upto 8,966 points in Mar 2009 (way above the previous high) and from their it again started rallying. (The people who had redeemed at 6000 levels, came back at 8966 levels only to enter at a level 50% higher than the level at which they redeemed).

This time it grew and surpassed the previous high of 21,000 in Feb 2014. Many people again thought that this is “All-time-high” and sold their stakes, thinking that they will buy again when it falls.

3. Once again, they were disappointed. Because from there, the market again rallied till 41,681 points in Jan 2020 and then fell to 25,981 levels on 23rd March 2020. This bottom of 25,981 was still much higher than the top of 21,000 at which people had sold with the hope of buying back.

In all the 3 examples you see a common pattern. 

A – Whenever market surpasses a previous top, people get scared and start selling with a hope to buy when it falls.

B – The Market falls, but it still falls at a level that is way too high than the previous top. So those who sold, re-enter at a much higher price than the price which they sold. 

Thus, in my opinion, any such temptation to “time the market” should be avoided. 

Sameer : Thank you so much Niraj. Many people were telling me to redeem and re-enter later. But you have showed with real examples that such attempts to “Time the market” can actually backfire.

Niraj : Right. Also, your purpose of investments in the market is wealth creation, not quick money. If the purpose is wealth creation, then stay invested and let the experts do their job. The Fund Managers are already booking profits on your behalf so that you can create wealth.

Sameer : Thank you so much Niraj. But I am still curious to know. How do you have all this knowledge with you ? We are working in same company and are of almost similar age. Still you have all this knowledge and not me.

Niraj : Its very simple. I have a trusted advisor with whom I am regular touch. He explains all these things coolly and calmly to me. You don’t have an advisor. You keep relying on TV Experts, Newspapers, Google and random friends who themselves do not have clarity on all these things. They think they are saving advisor fees, but it is costing them more by making such mistakes. Depending on such sources creates lot of fear and anxiety in your mind.

Sameer : This is So True Niraj. Please share the details of your advisor with me. Even I would avail his services so that I remain composed like you in these situations and create wealth for myself. Today I have learnt below lessons :

  1. Our investment decisions should be based on our goals and not market levels.
  2. Trying to time the market can backfire. Stay invested for long term.
  3. Don’t follow the herd by listening to media advice. Have a Trusted Advisor.

We look forward to your valuable comments and feedback.

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, CIA, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.

(Disclaimer : The views mentioned in the article are personal opinion of the author. Mutual Fund investments are subject to market risks. Please consult your Financial Advisor before making investment decisions)

#NidhiInvestments

#ProfessorBajaj

#SIP

#YourTrustedWealthPlanner

तूने गर्वित किया है माँ

जन्म दिया , प्यार दिया,
हर अच्छा संस्कार दिया,
कदम कदम पर मुझको मार्ग-दर्शित किया है माँ

कहत सौरभ, सौरभ को तूने गर्वित किया है माँ ।

बेटी, बहन, पत्नी, माँ, दादी
हर किरदार तूने बखूबी निभाया है
कितना खुशनसीब हूँ मैं,
मुझपे तेरे आँचल की छाया है
परिवार के हर सदस्य को तूने हर्षित किया है माँ,
कहत सौरभ , सौरभ को तूने गर्वित किया है माँ ।

सुना था, “पुरुषों की इस दुनिया मे, महिलाओं को ऊंचा स्थान नहीं,
काम भले ही महिलाएं करें, होता उनका गुणगान नहीं”,
सब के दिलों में ऊंचा स्थान, तूने अर्जित किया है माँ
हर निंदक को अपने गुणों से अचम्भित किया है माँ

कहत सौरभ, सौरभ को तूने गर्वित किया है माँ ।

– सौरभ बजाज

Budget 2020 : What’s in it For Me ?

As soon as the budget is presented, We see a deluge of analyses and memes coming our way. However, readers of this blog know that we choose to wait for clarifications and finer details so that readers get the right perspective for themselves.

A Large number of people were left confused because of the 2 Tax Regimes that the Budget talked about. Different People would have different opinions about the budget depending on their own profession and field. However, from investor and taxpayers point of view, we have made an attempt to list down few good things and few not-so-good things about the budget.

What’s Good ?

  1. If you are earning less than Rs. 5 Lakhs p.a. then life has not changed much for you. You can relax.
  2. If you are someone who “hates” to save money, the option of moving to new tax regime is for you. (Provided you earn more than Rs. 5 Lakhs p.a.)
  3. If you are earning more than 20 Lakhs p.a. then the new regime saves some tax outflow for you. So, it could be sensible for you to move to the new regime. (What could be insensible is, you stop saving money)
  4. The Deposit Insurance is increased from Rs. 1 Lakh to Rs. 5 Lakhs. For those who don’t know, this is Rs. 5 Lakhs “per depositor”. Some “smart” people try to make Rs. 5 Lakh FD in different banks so that entire amount is insured. Unfortunately, its not. And if you try to make it in different names, clubbing provisions will be applicable.
  5. Other than above, there have been certain measures taken which would contribute towards overall growth of the economy. This could result in equity markets giving good returns in the long term. Thus, investing systematically in diversified equity could be helpful in wealth creation.

What’s not so good?

  1. If you want to move to the new Tax regime, you have to forego most of the deductions (Like 80C, 80D, HRA, Standard Deduction etc).
  2. If you are earning between Rs. 5 Lakhs p.a. to Rs. 20 Lakhs p.a., life is not that simple for you. There are a various calculations that you might have to do, whether you want to go for old or new tax regime. It will also depend on your preference (or compulsion) to make several tax saving investments. Thus, its better that you spend some time with your advisor (although the FM thought otherwise), and find out what works better for you.

(The Table Shows Old regime and New Regime considering 80C, 80D and Standard Deduction. We have not considered HRA and other deductions in this table as they would differ from person to person. Thus, the decision to choose the regime will differ from person to person even if they have same income.

IMG-20200206-WA0004

3. The new tax regime suggests that there is no need to save for tax saving. There are many people who are happy that now they do not “have” to save. They will save tax anyways. For them, I have few questions.

  • If you ride a bike, why do you wear a helmet? Is it to save fine? Or is it to save your life?
  • Why do you use a pedestrian bridge? Why do you not cross the railway track? Is it to save penalty? Or is it to save your life?

When you invest money for your future, don’t do it just for tax saving. Do it so that you create wealth for your own future.

When you buy a term plan, don’t do it only to save tax. Do it so that your dependents are not left stranded if something unfortunate happens to you.

Tax saving is just an additional incentive given to you for your own good. It does not mean you stop doing your own good, just because the additional incentive is gone.

4. The Dividend Distribution Tax (DDT) is “Abolished”. This is quite tricky. Because it will now be added to the investors income and will be taxable as per their slab.

This needs to be evaluated based on whether it’s a Debt Mutual Fund or Equity Mutual Fund, what is the income slab of the investor and so on.

Those in low tax slabs, will “mathematically” benefit from this. (Psychologically, they will be uncomfortable as now they will feel the tax going from their pocket)

But those in higher tax slabs, evaluation needs to be done on a case-to-case basis. (Again, consulting an advisor might be needed – Something contrary to what the FM had thought).

Also, the DDT is gone, but there will be a TDS on payment of dividend above Rs. 5,000. So, while the cashflows might not improve to a great extent, the onus of tax liability is definitely shifted from the corporates to the recipients (which could be individual investors).

What Should be our Plan of Action ?

We might argue that there could have been a several things which could have done much better in this budget. But as they say, there is no point in crying over spilled milk. Investors now need to tweak their strategies and see how they can benefit (or at least reduce loss).

  1. Saving or Investing money for your future is still important, even if the tax incentive seems to have gone away.
  1. The FM has already hinted that government intends to move into a “No-Exemption, No-Deduction” era. Do not commit yourself to something like an additional home loan, just to save tax. This is because, in future, the tax incentive might go and the loan will still be sitting on your head. In simple words, do not buy a property by taking a home loan, just to save tax.

2. Do not buy random insurance policies, just to save tax. Again, the tax incentive might go away, and you will be “forced” to continue paying the premium. Choose a non-compulsory product like ELSS for your 80C investments.

3. Your decision to buy a Term Plan or a health insurance, should have no dependence on tax saving. Buy them so that you are financially protected from unforeseen mishaps.

All-in-All, the budget comes with a mixed reaction. But that’s how life is. We can’t expect every day to come with a good news. We can only have a positive and receptive mind, which accepts every challenge as an opportunity, and take best possible advantage of the same.

We look forward to your valuable comments and feedback.

 

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, CIA, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions..

(The views mentioned in the article are personal opinion of the author)

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