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PERSONAL FINANCE Investors’ dilemma — Is equity a good bet? investor guidance |
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Smart financial planning for your child Kamlesh Rao We all want the best for our children, the prime objective is my child should get better in life than what I got as a child, it means providing them with better education which will allow him to prosper, ability to help them settle down with marriage and then the so called "my responsibility ends" feeling sets in. The irony is that as each year passes, the cost for each of our basic needs increases significantly and our pursuit to chase our dreams still continues. This is how inflation squeezes our wallet every single year. And with inflation rate growing faster than macro-economic growth rate over the past few years, the future won't be easier. Well begun is half done they say but in the financial world beginning early to plan for your child's future is extremely important, we have access to financial planning as a concept which helps in planning for our life goals in a systematic manner both in the short term as well as long term. At an inflation rate of 6-7%, average cost of education from Rs 1 lakh will jump to Rs 2 lakh in just 10 years time, we learn compound interest formulae very early in our school lives but apply it very late in our financial lives is a fact that many of us can't run away from. There are various instruments which facilitate planning for children's education. These include savings account for children, child insurance plans, child mutual fund schemes or creating own plan through combination of stocks, mutual funds and bonds. Opening a children's savings account is perhaps the easiest way to start planning for the child's future. With this account, parents can build a long-term savings corpus for the child by depositing money regularly in the form of Systematic Investment Plans (SIPs) or Recurring Deposits (RDs). Such accounts also inculcate early savings habit in children. Child benefit mutual fund scheme is an alternative for parents seeking to invest in options that provide them relative growth through equity participation as well as stability of debt instruments. These schemes are structured either as balanced fund or debt-oriented hybrid structure which is low on equity. These schemes also provide the flexibility of systematic investments for those who cannot invest lump sum amount. SIPs help investors in investing at regular intervals for a certain period in a disciplined manner even allowing for smaller amounts. Children insurance plans help in insuring child's education needs in future even if the parent (policy holder) passes away. The future premiums will be paid by the insurer so that the child receives the targeted corpus on maturity. There are certain children insurance plans which come with riders such as providing regular income in case of parent's death. Investors can also create their own portfolio of stocks, bonds and various mutual funds. However, these require in-depth analysis of various instruments, awareness and continuous update of macro-economic conditions and a proper assessment of one's risk appetite. Another important asset class people plan for is gold but with the way gold prices has moved over the past 10-15 years, these expenses may come to you as a sudden jolt if we do not plan in advance. In the past five years, gold mutual fund schemes have emerged as one of the attractive investment tools for investing in gold. These are either in the form of Gold ETFs or Fund of Funds which invests in Gold ETFs. Investors can buy one unit to multiple units either from the exchange or by applying to AMCs. Gold ETFs invest in physical gold which has almost 99.9% purity and is stored with custodians. These units come in electronic mode and get stored in the demat account of the customer. The customer saves on the insurance cost and wealth tax also on these investments. If one does not have lump sum amount to invest in Gold ETFs, Gold Fund of Funds provide systematic investment options. Thus, investors may choose a specific investment amount which will get invested regularly over a pre-specified period. There are various alternatives, which will help you in achieving important goals of life. However, one needs to plan smartly to achieve it. And the harsh reality of life is "failing to plan means planning to fail." The
author is executive vice-president, Kotak Mahindra Bank. The views
expressed in this article are personal and do not reflect the views of
Kotak Mahindra Bank. |
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Investors’ dilemma — Is equity a good bet? On the other hand, the set of new investors think stock market will do much better than other asset classes and would like to jump in without knowing the risk involved in it. Investors must also try to understand equity as an asset class before investing. Every asset class has its risk reward ratio and before investing investors must know this. Risk comes from not knowing what you are doing. Higher the return, higher the risk and vice versa. You cannot expect overnight profit from equity as it is always a long-term game. If you understand and follow the basic rules of investing in equity then you are likely to gain in the long run. Your time horizon for investing in equity should be minimum five years and above. You must invest as per your asset allocation ratio and never go overboard and concentrate on single asset class. Never try to time the market and always stay invested is the success mantra for investing in equity. Here are some tips for the investors which can help them taking any investment decision in equity in the present bull run. Avoid direct equity investment Direct investment through stock markets requires indepth research and analysis. We firmly believe that individually it is not possible for us to do so and devote time for the same. Therefore, direct investment in equity is not recommended. Also avoid investing in ULIPs or PMS. Mutual fund is the best option You can consider investing in mutual fund schemes. Mutual fund investment can help a lot to investors. You get the benefit of diversification when you invest through MF schemes. You also get the advantage of professional management and can easily compare the fund performance vis-à-vis other schemes in the same category and its benchmark index. Instead of investing in sectoral or thematic funds, invest in well-diversified funds, which invest in stocks of many sectors that give good diversification across sectors. SIP is the proven strategy SIP in mutual fund schemes is the best solution for investing in equity for the long term. SIP is the way of creating wealth by investing fixed amount regularly month on month on a selected date in one of the mutual fund schemes. The advantage you get is rupee cost averaging, which lowers the average cost. Secondly, you are not worried about daily volatility of the market and it makes market timing irrelevant. Monitor and review the performance It is always advisable to monitor and review the performance of the scheme in which you have invested. Your fund cannot stay in first three always but has to remain in first quartile at least. The active fund has to beat its benchmark and if your fund does not perform better as compared to benchmark consistently, you need to take a call and shift your investment to other performing fund. Rebalance your portfolio Asset allocation plays a major role in deciding your returns over a period of time. Your portfolio returns depend more on asset allocation than fund performance. Asset allocation once decided should be followed seriously and accordingly should be rebalanced periodically. Rebalancing is the process of restoring your portfolio back to its original asset allocation. Rebalancing generally should be done every year or when you get some good profits from one asset class like today. Stay away from IPOs and NFOs In upward market, we always see more and more new offerings come in the market as everybody would like to take advantage of rising market. This period is good for IPO not only because you get the good response but also get the premium which otherwise is unlikely to get. NFOs are also not good and we advise our clients to invest in the equity scheme only if it has completed three years and has a proven track record. Don't be greedy in the high market but do some home work before investing in equity. The expectation of higher return without understanding the risk involved sometimes leads to big financial loss. The author is head — financial planning, Apna Paisa. The views expressed in this article are his own. |
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Pay registration fee, stamp duty to gift property A N Shanbhag
The only formality is to pay the registration fee and stamp duty for transferring the flat in the name of the donee/s. To safeguard against any hassles, it is advisable to follow proper gift procedure. All that is required is an offer by the donor and acceptance thereof by the donee in black and white. The donee should request the donor for a gift and then the donor should remit the amount to the donee. Alternatively, the donor can offer the gift. In either case, it is necessary for the donee to accept the gift in writing (maybe through a thank you note). Only then it would be considered as a gift in India. It is preferable to mention the relationship between the donor and the donee. For computing long-term capital gains arising out of the subsequent sale by the donee or the legatee, the cost of the property is the cost incurred by the donor when he originally acquired it, or if the property was acquired by the donor prior to 1.4.81, the Fair Market Value as on 1.4.81 as assessed by an official chartered valuer, whichever is higher. Explanation ‘iii’ to Sec. 48, defines ‘indexed cost of acquisition to mean an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later’. This means that in the case of an inherited or gifted property, the cost of acquisition is the cost to the original holder (or FMV as on 1.4.81) but the date of acquisition for indexing should be taken as the date of the inheritance or the gift. However, the character of long or short-term depends upon the date of acquisition of the donor. In case this donor has also acquired the property by way of gift or inheritance then it will be the date of very first holder who purchased or constructed the property. This may end up in some strange results. For instance, if and when you sell the property, it will be treated as sale of a long-term capital asset, irrespective of your holding period but the ratio for computation of indexed cost will be the CII of FY in which you have sold the property and the FY in which you became its owner. Thankfully, 18 taxmann.com 261 Arun Shungloo Trust v CIT [2012] Delhi HC has observed that the benefit of indexed cost is given to ensure that the taxpayer pays capital gain tax on the ‘real’ or actual gain and not on the increase in the capital value of the property due to inflation. This is the object or purpose in allowing benefit of indexed cost of improvement, even if the improvement was by the previous owner in cases covered by Sec. 49. Accordingly, there is no justification or reason to not allow the benefit of indexation to the cost of acquisition. The expression ‘held by the assessee’ used in the Explanation (iii) of Sec. 48 should include the period during which the property was held by the previous owner. I am being assessed under HUF category in respect of rental income from commercial property in Delhi. I am also filing a separate return in my personal name for my pension income. Now our group housing society has been allotted land in Mohali for construction of flats. I will get one flat in the society. For payment to the society I will raise a loan in my personal name from some bank. Please advise whether I will be able to set off rebate of interest on loan from my HUF income account. — Kumthakar The benefit of Section 24 is available to all the assessees, including HUFs. However, note that if the tax deduction is required for the HUF, the HUF should be the owner of the property and the loan should also be in the name of the HUF. Please advise whether up to Rs 1 lakh deposited by a senior citizen in the Post Office Senior Citizen Saving Scheme (SCSS), in a year is eligible for income tax exemption u/s 80C. — Saini Yes, it is. The benefit of Section 80C has been extended to investments in SCSS w.e.f. 1.4.07. The authors may be contacted at wonderlandconsultants@yahoo.com
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THE Sensex and Nifty are near all-time high figures and investors are confused, in a dilemma too as what to do. The existing investors call us to know whether to book the profit now and shift part to debt or stop
SIPs.
What are the formalities if I want to transfer a residential property to my brother or sister and any transfer fee has to be paid and would like to confirm if my cost basis for the property carries forward to the person I am gifting. — Kiran Dave