Author: hirannya

What’s in the budget for 2016-17 ?

Union Minister for Finance, Mr. Arun Jaitley announced the budget 2016-17 that seems to have brought some relief to the small taxpayers and the business owners. The budget also has no relief in the Income tax slabs or the 80C limits. The EPF withdrawal will also be taxed on 60% corpus. There are of course mixed reaction from people at various income levels and strata.

The details of the budget

The budget’s focus is on the rural economy and of course, the farmers were getting neglected for decades. There is tax relief for small taxpayers and has the affluent to pay more. There has been a push in the agriculture sector, the rural development, and the social sector. The push towards enhancing irrigation was also apparent. There will also be a good investment in public roads in the rural and urban areas.

For the taxpayers

We see no changes in tax slab or the 80C, although everyone was expecting the limits to be increased which never took place. Around 40% of NPS corpus will be now tax-free when it matures, and the rest 60% will be taxed if withdrawn completely. There is no tax on the annuity from the 60% corpus. The next is the EPF interest becomes taxable for the corpus of 60%. The EPF was an important point of discussion in the budget and is told that the only interest component is taxed during withdrawal and is applicable to the interest that will be earned after 1^st April 2016. On the brighter side, the PPF still remains tax-free. The other one is the HTA exemption under the section 80 GG, raised from 24 thousand to 60 thousand annually. If you are a first time home buyer, you will definitely get Rs. 50 thousand deduction in the interest rate if the loan does not exceed 35 lacs and the total house value does not exceed 50 lacs. Get to know the Krishi Kalyan cess that have not added to the service tax and is applicable on all taxable services. The service tax will now see a hike from 14.5 % to 15%.

Budget for startups

The budget, this time, was interesting when the Finance Minister emphasized in the Prime Minister's visible campaign to boost investment and jobs with the ‘Start-up India, stand – up India’s plan. The budget says that the new manufacturing firms shall be taxed at 25%, and there will be no further exemptions. Companies with turnover of less than Rs. 5 crores will now be taxed at 29%. The startups will now get a 100 % tax exemption for the next three years.

Banking

A big boost has been given to the banking sector with almost Rs. 25,000 crore in the recapitalization of the public sector banks. Public sector banks have been focused on the current budget. There will also be ATM facilities in rural post offices for the convenience of the rural people. The general insurance companies will now be listed in the stock exchange.

Education sector

There will be Rs. 500 crore schemes for promoting entrepreneurship among the reserved calluses. Private and public educational institutes will be made world class. There can be an allotment for multi – skill development centers that will amount to Rs. 1,700 crore for 1500 centers.

Others

The focus will be on providing digital literacy scheme to be launched that will cover 6 crores to the additional rural household. The recent budget also announced the turnover of the limit under the Presumptive taxation scheme under section 44AD of Income Tax Act to 2 crores.

The budget has been set keeping in mind the global economic crises and to strengthen the existing economic reforms in India.

March 15, 2016
Tax planning tools for Indian taxpayers

Tax planning tools for Indian taxpayers

Today, in the year 2016-17, the government has provided various schemes in the budget for taxpayers. Tax planning can be done according to the benefits and the schemes that are beneficial to save tax. Tax planning can be a good way of investing money by using the schemes provided by the government in various ways so that people can benefit from the schemes and also pay tax eagerly.

Equity Linked Savings Scheme

Compared to traditional tax saving instruments like Public Provident Fund (PPF), National Savings Certificate (NSC) and bank fixed deposits; the lock in period of an ELSS fund is much lower. While ELSS investment is locked in to 3 years, PPF investment are locked in for 15 years, NSC investment is locked in for 6 years, and bank fixed deposits eligible for tax deduction are locked in for 5 years. As ELSS is an investment in equity markets and investing in this for a long term can give you better returns compared to other asset classes over the long term. You can also get income from your investment amount in the lock in period if you opt for dividend schemes.

Life insurance

Life insurance policy is today, both popular and widely adapted tool for tax saving and also for life insurance. Various plans are available in life insurance policy as per the requirement of the individual. The government as well as private companies are participants in life insurance business. For saving taxes, the section 80C of the income tax act provides benefits like the deduction for a maximum of Rs. 1,50,000 from the total income of the person.

Public provident fund

The public provident fund or the PPF is another popular income tax saving scheme in the country and provides an investment that provides assured returns along with tax benefits. It is governed by PPFS and PPFA. The scheme is available to those who have their own account or has minor children. The maturity period is 15 years and can be extended up to 5 years.

Residential housing property

This scheme provides tax benefits of different kinds which are important. The maximum deduction allowed here is Rs. 1,50,000. It is available to individual or HUF. A tax deduction is available for repayment of the principal amount that has been borrowed in section 80C. The payment of installment due to the company or other institutions, in which the assesses is member, towards the cost of property that is allotted to him, Registration fee or stamp duty for transfer of property to the assessee. Deduction for interest on housing loan is also possible under section 24B where an amount of Rs. 30,000 is allowable for maintenance of house or the repairs.

Sukanya Samridhi Account

In this scheme tax deduction is an application for up to two to three girls in case of twins in the first case or second case only. Here one can get a maximum deduction of Rs. 1,50,000. The min. initial deposit is 1000 with another one hundred rupees thereafter with the annual ceiling of Rs. 1,50,000 in a financial year. The interest rate is 9.20 % w.e.f. the maturity is 21 years from opening the account. The period of deposits is made up to 14 years from the date of account opening.

Children education

Tax planning and deduction can be done through education of the children. One can get tax exemption on tuition fee of the children to any university or school or college or other institution in India for the sole purpose of education.

Health insurance India

The Medi-claim policy or health insurance in India covers the expenditure towards the medical treatment and the hospitalization. There are terms and conditions for the policies from different companies. The tax deduction available is Rs. 15,000 and on senior citizen it is Rs.20, 000.

Considerations

People are aware that they can save tax by investing and proper tax planning in various schemes. Investment should be made any time of the financial year. On the basis of proof, one can submit the income tax by the specified date. Those from a business background or professionals are liable to pay the tax in advance during the financial year. The salaried individual’s tax is deducted at the source directly from the salary itself. There are different taxes like fixed deposit, house property or the capital gain. It is you who will have to pay tax on these additional income taxes after doing a perfect tax planning.

March 1, 2016
Things that you should know about tax deductions
Tax deductions– Things that you should know

A tax deduction is nothing but reducing the taxable income of individuals who pay income tax regularly. It helps to reduce the overall tax liabilities, and you save money, according to the type of claim that you make on the tax deduction type. The amount of deduction depends on the tax. You can claim the tax amount spent on the children’s education, medical expenses and also charitable contributions. Besides, one can also save tax by investing in several schemes like Equity linked savings scheme, PPF, Fixed Deposits ( 5 Year ), life insurance plans, national saving schemes and more. There are tax exemptions for several expenses that occur during different activities relating to social benefits.

Get to know tax deductions better.

Tax deduction details for those who pay income tax

Section 80C is very useful for the people who are into jobs or into business. There is a reduction available in this section for up to Rs. 1, 50,000 whose gross salary is Rs. 2, 50,000 or more and are entitled to utilize Rs. 1, 50,000 limits. One can enjoy deduction of taxes when it comes to tuition fees of children and the principal amount that they have to pay towards a home loan that is paid during the financial year. The deduction is also available to those who contribute to employee provident fund or the public provident fund, accrued interest on the National saving certificate, Life insurance Premium, 5 years fixed deposits with banks and post office and equity-linked savings schemes.

Tax deduction under 80C
- Under section 80 CCD the individual who contributes in NPS can claim the deduction and the amount should not exceed Rs. 1,50,000.
- 80CCC – the deduction is arising from the various contributions to LIC or other insurance companies of up to Rs. 1,50,000 is available.
- 80CCD – the deduction that is related to the pension scheme from the Central Government can get a deduction of up to 10% of the salary.
- 80CCF – in this section one can get a tax deduction of Rs. 20,000 for a subscription to the notified long term infrastructure bonds.
- 80 CCG – deduction of Rs. 25,000 is possible when one notifies for an equity, savings scheme for those who are in the Hindu undivided family.
Tax deduction under 80D

Under this section, one can get a tax deduction for medical premiums for self and dependents but, by other means of payment apart from LIC or insurance providers.
- 80D– you get the benefit of deduction of Rs. 25,000 is allowed to those who have paid health insurance policy for dependents as well as self. Another Rs. 25,000 deduction for a premium on health insurance policy of the parents is available. The limit is Rs. 30000 for senior citizens.
- 80DDB – deduction is possible on medical treatment in illness like cancer, AIDS and neurological diseases of Rs. 40,000. For senior citizens, the deduction is available for up to Rs. 60,000 and for super senior citizen Rs. 80,000.
Tax deduction under 80E, 80G, 80TTA, 80U
- 80E provides for taking a loan for education from financial intuitions.
- 80G helps when donations are paid but to a certain limit of up to Rs. 10,000.
- 80TTA section provides a tax deduction to those in the HUF only. The interest earned around Rs. 10,000 from bank savings can be deducted from total income.
- 80 U sections allow a 40% deduction for those who have a disability of any kind on Rs. 75,000 and in severe disability, there is a tax deduction of Rs. 1, 25,000.
There are several other tax deductions under various schemes that should be learnt from the reliable offices of the government. it helps to save tax, and there are various benefits that the government provides for the taxpayers in various forms of a tax deduction.

Our Tax calculator will make your income tax calculation very easy. Calculate income tax with our free income tax calculator, according to latest assessment year http://hirannyafinplan.com/income-tax/
February 22, 2016
15 Things Your Financial Advisor can do for You – Part 3

[Continued from previous post]

(11) Keep you informed

In good times and bad, your financial advisor will keep you informed of how market moves are affecting you and your portfolio and strategy. He or she will also let you know about important events that may affect your investments – including elections, global unrest, changes in tax rules etc. You have more important things to worry about than the state of your portfolio at any given time, but your financial advisor does not.

(12) Teach your family basic concepts

You can't do it alone. If your family is not on board with the plan – it will be more difficult for you to reach your goals. Your advisor should be able to explain basic concepts to your children so that they understand how to manage their money and your money. Good habits are best when begun early. And bad habits should never be allowed time to take hold.

(13) Plan for your future

As your circumstances change you will need to update the way your finances are planned. Your financial advisor should do this for you – make sure you are in the best shape to take the next step on your financial journey – from single to married to parents to new jobs, no jobs and even grandparents and retirement.

(14) Offer you special investment opportunities

Sometimes a financial advisor can offer investment opportunities which are not available to the general public. Those will be opportunities that you know will be appropriate to you and your circumstances. And you can rest easy that the offer will be made in your best interests. As a registered advisor – the code of ethics – bind your advisor to make sure that your interests are served before his own.

(15) Connect you with experts

Your advisor is a professional and is connected to a range of other professionals and specialists to refer you to for your various requirements. This might include a lawyer, an accountant or other. The advisor can also work with your existing professional relationships if you already have an accountant or a lawyer. The idea is they all work together and make sound decisions that will make your financial strategy more seamless to manage.

[Inspired and in part taken from JAS Wealth’s eBook of the same name]

February 17, 2016
Retirement Planning should be your Most Important Financial Goal

We all need to and want to plan for our retirement. But, are we ready? Are we going on the right path and investing wisely? Well, these questions are sometimes very daunting and to top it all, we do get a lot of advice from various sources which can be taxing! Retirement plans are very crucial and should begin right from the moment one starts earning. Well, if it is delayed, never mind, there are still ways that can help you save and have a good retired life. But, are you ready for planning or are you still contemplating? One definitely needs to have a defined picture about it as to how and when and then figure out the right plan.

Why retirement planning is important goal

The times are difficult as we all know, and they are going to be difficult once you stop earning that is when you retire. Your expenses are not going to reduce just because you are retired, or nobody is going to give you that kind of salary due to your age. There is the inflation, the interest rate, health issues, medicines, and the lifestyle that influence the expenses. The life span has increased and with it, there are several issues that need to be tackled. Are you retiring by choice or is it by force? That is if you are a government employee, you will definitely retire when you are around 60 or even less. Maybe you might take up another job, but, of course, the salary will be much less. Is there anyone who can provide you with finances if you truly need them? Do you own a house or live with your children? There are some questions like these that will help you get a clear picture. But, I must say, you must be realistic and think practically. You need a good retirement planning before you retire so that you are ready to retire and have a peaceful life without depending on others for your basic needs.

Points to consider for retirement planning

What is your income?

Whether you are in business or an employee, you still have an income and also expenditure at the age when you cannot work anymore. So calculate and consider if you can save anything from it. How much do you spend? Calculate all this and check how much you can save today and how much you will be spending after retirement and what your expenses will be. Try projecting for around 5-20 years and more which can be impossible to track how much you will need in the future. Taking your present income and the expenses, the savings should be enough to suffice your lifestyle. But, when there is no income, things can be difficult. A plan that includes your income as well as expenses should be chalked out. Think of other expenses that you might need like a vacation, children’s marriage, education, house, car, other expenses like domestic and unknown.

Best retirement planning

The best retirement plan should be a mixed asset plan. Your portfolio should be based on the age of retirement and your income. It varies according to different income scales, and that is why there is no single plan. Every retirement plan is different based on the lifestyle and needs. There are various considerations and investment assets that can help you benefit right from the present day till you retire. The best way is to approach a professional financial planner who can prepare financial plan for you according to your income, expenses, liabilities and also how many years you will be working till you retire.

February 17, 2016
15 Things Your Financial Advisor can do for You – Part 2

[Continued from previous post]

(6) Keep you on track

Think of your financial advisor as your Gym Instructor or Personal Trainer. He does not only create a diet chart and exercise plan for you, he also makes sure that you stick to it – day after day. So in other words your financial advisor is also your financial coach. Making a wonderful financial plan is futile, if it is not followed. Your financial advisor is supposed to guide you at every step here. Overspending, leveraging, easy credit, get-rich-quick schemes – traps are many. Contact you advisor at any such moment when your decision is going to impact your financial life directly or indirectly.

(7) Take care of your retirement

Retirement is often considered as the single most important financial goal in your life. This goal is unique because accumulating required retirement corpus is just not enough. Equally important is to generate inflation adjusted income from that corpus – year after year. This requires prudent financial planning decisions coupled with efficient portfolio management skill. When you know that you are in safe hands, it always means a lot, even more after retirement.

(8) Protect your lot

Building your assets is vitally important for your future, but protecting your assets is equally important. How much protection is enough? Ask your adviser. If something happens to you – or your partner – how will you continue the life you are used to – how much will it cost to maintain your lifestyle for the present and the future? If you don’t have enough insurance, your life may face drastic and unpleasant changes just at a time when this would compound other difficulties facing you. It is good to know that whatever happens, your life – or the life of your family – can continue as well as possible in changed circumstances.

(9) Look after your Estate

Families are at the heart of financial planning. Making sure that everyone is looked after when one member dies is something that can make a huge difference to the financial position of the rest of the family. A financial adviser can ensure that your estate is structured effectively so that when something does happen to you or a loved one – it will upset you but not your financial plans. This is even more important when a small business is involved.

(10) Explain how things work

If finance isn’t your specialty you can rely on your financial adviser to assist you through the jargon and explain simply financial terms and concepts and make sure you understand how it all works – Family Budgeting, Retirement Corpus, Laddered Annuities, Income Laddering, Asset Restructuring, Mortgaging, Expense Replacement, Debt Restructuring … the list goes on.

To be continued…

[Inspired and in part taken from JAS Wealth’s eBook of the same name]

April 27, 2015
15 Things Your Financial Advisor can do for You – Part 1

[Inspired and in part taken from JAS Wealth’s eBook of the same name]

(1) Do you have a budget? Do you stick to it?

It’s a simple statement which can be made using a pen and paper, an Excel worksheet, an App or anything similar you can imagine. The idea is to bring a pattern to a chaos named family budgeting. After checking out lots of tools – online and offline – we found one simple Excel sheet that you can use to maintain an account of your income and expenditure. Make a request using comment section below; we will mail that to you. Your adviser can and should work with you to develop a budget, one that suits you and your lifestyle and will set you on the right path to live the life you want now and in the future.

(2) Put your debt to work

There are different types of debt – good and bad. Your financial advisor can explain the difference and make sure that – where possible – your debt is working for you and your future. Sometimes at start of your career, when you do not have much of savings, you have to take a home loan to buy your house. But it is not as simple as that. Do you really need to buy one? If you are the only child of your parents and have a spacious house to live in; you may not need to buy a home just to satisfy your ego, or just because your friend has bought one. If you have moved to a different city for work and are planning to buy a house there – think. What if, you may again change your job and move to a different place? Is rent an option? If buying a home makes sense, then what should be the budget? If you get a higher loan amount sanctioned – does that mean that you should take a higher loan? Your financial advisor should guide you here.

(3) Assist you with a savings plan

The benefits of a good, regular savings plan cannot be stressed enough. How do you start? How much can you afford? What will your short-term, medium-term and long-term goals be? What will your savings milestones look like? As your financial coach, your adviser can help you develop a plan that will work for you and will also help you meet the goals you set together.

(4) Invest your money

Saving is one thing and without the discipline of putting something aside it won’t be possible to invest. Investing is something else – investing is making sure your money is working as hard as possible. Where to invest is difficult to know. Your adviser is qualified and has the experience to help you navigate the myriad opportunities available to give you the best options available for you.

(5) Help you realize your goals

There is a way to achieving your goals. First is to talk through and understand your goals. Next is to make a plan – the plan should be clear in showing how you are intending to reach these goals. The plan may change over time as your priorities change and goals need to adapt to changes of mind or circumstances. Your financial adviser will be able to work with you in adapting and reshaping your plan to meet these new goals. But without a plan in place reaching your goals will be much more difficult.

To be continued…

April 20, 2015
How to write a Will in India
Writing a Will is very important. Below are 12 important points to take care of while writing a Will:
1. A Will can be made by anyone above 21 years of age in India. You can make the Will on plain paper in India. It’s not legally necessary to make the will on stamp paper.
1. If you die without preparing a WILL in India, your wealth will then be distributed as per Hindu Succession Act, 1956 (for Hindus, Jain, Sikhs and Buddhists) or through Indian Succession Act, 1925 (Indians Christians and other religions).
1. When you are dead, there is someone called an “Executor” who will be responsible for dividing your wealth amongst the beneficiaries and he will make sure the whole process is smooth.
1. You can change your Will any time you want to. However, make sure that when you make a new Will, you mention that this Will is the latest and supersedes all earlier Wills.
1. A “Codicil” is a document that amends, rather than replaces, a previously executed Will. Amendments made by a codicil may add or revoke small provisions (e.g., changing executors), or may completely change the majority, or all, of the gifts under the Will.
1. Although registration of Will is not compulsory, it Is highly advisable to do so! Registration of any indenture creates a presumption in its favour. After the death of the person who made the Will, the beneficiaries don't get the property automatically. They have to go to the court and get a “Probate”. Only after the court grants you probate can you become the owners of the property.
1. A “Probate” is nothing but a copy of Will, certified under the seal of court. The executor (someone who is responsible to execute the Will) has to file a probate petition in the court of law and if all goes well, the probate takes six months to a year. No right as executor or legatee can be established unless a court has granted the probate of the Will. Probate can be granted only to the executor appointed by the Will. The cost of getting a probate includes legal fees as well as stamp duty on the value of the property being willed. The stamp duty varies from state to state. Probate is very important in case of Real Estate.
1. If possible, have the two witnesses be a doctor and a lawyer. A doctor signing a Will, won’t raise any question of you, being of unsound mind. The lawyer, will vet the will and make sure you don’t make stupid mistakes at the time of writing and signing it.
1. The attesting witness and his or her spouse should not be a beneficiary under the terms of your Will. This might create vested interests and sometimes make your Will invalid. Also, make sure the witnesses are younger than you and not very old as your will might be in effect for several years.
1. In case of Hindus, it should be clearly stated if the property is inherited or not, because it makes a huge difference, as no ancestral property can be assigned to any person through a Will. All rights on inherited property are acquired by birth. So if you inherited a property from your Father, you cannot say in a Will, that you want to assign it to person X only! It will go to all your legal heirs as it is “Inherited”.
1. A Will must always be dated and if more than one Will is made, the one with the latest date will nullify all the previous ones. In fact, there should be a statement in your Will, nullifying all other previous Wills. The pages should be numbered to avoid fraud.
1. The value of assets often fluctuates, so it is better to mention how much each beneficiary will receive, in percentage terms rather than absolute numbers. Unless it is pure cash.
How should a Sample Will Template look like? Below are two images, which you can follow:
April 13, 2015
NPS – 10 Point Guide

Off late, lot of inquiries are coming in relation to NPS (National Pension System). We would be happy to answer them individually. But here is a quick 10 point guide in regards to the same. This may answer few of your doubts. But if the below guide does not answer your query, please mention the same using comment section below this article. We will surely get back. Here you go –

1) NPS Contribution can be made by all of us voluntarily or can be made as part of your salary structure i.e. by restructuring your CTC (Cost to Company) involving your employer. Please note that NPS contribution is mandatory for govt. employees joining service on or after 1st January 2004.

2) Contribution, when part of salary structure, is capped till 10% of your (Basic +DA).

3) Voluntary contribution or employee’s contribution of amount up to Rs. 1.50 lakhs is available for tax deduction U/S 80CCD(1), which is part of overall 80C limit of Rs. 1.50 lakhs.

4) From 1st April, 2015, an additional amount of Rs. 50,000 investment in NPS can be claimed for tax deduction U/S 80CCD(1B). This is over and above 80C limit of Rs. 1.50 lakhs.

5) The employer’s contribution (this is basically part of your CTC only. After restructuring your CTC gets reduced by the same amount.) falls U/S 80CCD(2) and this amount can also be claimed beyond 80C limit.

6) Under NPS two investment choices are available – Active choice and Auto choice. Under Active choice, three options are there – E, C and G. Under asset class E, investments are predominantly in equities (maximum up to 50%). Under asset class C, investments are into fixed income instruments other than GOI securities. Under asset class G, investments are in GOI securities. Under Auto choice, investments will be made in a life cycle fund in a pre-defined portfolio based on your age.

7) Maturity amount is taxable – not only gain, but the entire maturity amount.

8) Maturity of Tier-I a/c of NPS will happen at the age of 60 only. At least 40% of the maturity amount has to be used to buy annuity. If amount are withdrawn before age 60, then 80% of the maturity amount is to be compulsorily used to buy annuity only.

9) E, C and G asset class portfolios are now being manged by ICICI, Reliance, Kotak, HDFC, UTI, LIC and SBI Pension Funds. Switch between scheme and fund manager is possible.

10) NPS is administered and regulated by PFRDA (Pension Fund Regulatory and Development Authority)

March 10, 2015
Risk – What is Important?

In its “Investment Advisers Regulation” SEBI has mentioned the following –

Investment Adviser shall ensure that, it obtains from the client, such information as is necessary for the purpose of giving advice, including Risk Appetite / Tolerance.

We are following the above guideline strictly.

But at the same time we strongly believe that there are more to it. As far as Risk Appetite / Tolerance is concerned investors are mostly classified in three broad groups – Conservative – Moderate – Aggressive. But such ‘One size fits all’ strategy rarely works. Let us consider a few case studies –

(1) When ‘Risk Profiling Questionnaire’ is given to Mr. Sumit, aged 35, employed in an IT MNC, his answers revealed that he is a conservative risk taker. He wants to avoid equity, direct or indirect, as an asset class from his portfolio. His preferred assets are fixed return products. Now when his retirement goal is being planned it is found out that to achieve the goal following scenarios are there –

Current Age – 35; Retirement Age – 60; Life Expectancy – 85; Household & Lifestyle Expenses – Rs. 30,000; Inflation – 7%;

(a) Monthly savings or SIP required is Rs. 11,023 when expected return from investments is 15%.

(b) Monthly savings or SIP required is Rs. 19,030 when expected return from investments is 12%.

(c) Monthly savings or SIP required is Rs. 26,947 when expected return from investments is 10%.

(d) Monthly savings or SIP required is Rs. 37,596 when expected return from investments is 8%.

(e) Monthly savings or SIP required is Rs. 51,594 when expected return from investments is 6%.

Now, current monthly investible surplus in Mr. Sumit’s case is Rs. 20,000. The goal is also 25 years away from now. Should we recommend him to invest only in fixed return products?

(2) When ‘Risk Profiling Questionnaire’ is given to Mr. Amit, aged 35, employed in an IT MNC, his answers revealed that he is an aggressive risk taker. He prefers to invest in equities mostly. Now when his vacation goal, which is due in next 2 years, is being planned – should we recommend him to invest in his preferred asset class i.e. equity?

The logical as well as right answer, according to us, would be a ‘No’ in both the above cases.

So in practice, recommended asset allocation does not (only) depend on someone’s Risk Tolerance Level but mostly on the following two factors –

(1) Time Horizon along with cash-flow situation – When a financial goal is long term i.e. more than 10 years away from now, and cash-flow situation does not allow investments in low yield generating instruments – one has to go for equities. If invested with caution, and review is done at regular interval – equity as an asset class is capable of beating inflation rate with a good margin.

But when a financial goal is due in short term i.e. within 5 years, recommending investment in equities is not right, though investor’s risk profile may be aggressive.

(2) Knowledge – When you spend time in understanding an investment product i.e. how it works, what could be the best and worst case scenario etc. – risk reduces considerably. There is hardly any risk when a car is driven by an experienced driver, but there is a HUGE risk when that same car is driven by a 6 year old kid who does not know anything about driving. That is why over a period of time, when your knowledge increases of a particular product – your comfort level increases, risk reduces.

What do you think? Let us know your opinion in the comment section.

March 7, 2015