The document provides advice to senior citizens on how to wisely choose tax-saving plans for retirement. It recommends that senior citizens avoid life insurance products and instead focus on plans with short lock-in periods that offer decent returns or regular income, such as equity linked savings schemes (ELSS) and tax-saving bank fixed deposits. It also discusses government backed options like the Senior Citizen Savings Scheme as good tax-saving investments for retirees due to their guaranteed returns and tax benefits.
The document provides advice to senior citizens on how to wisely choose tax-saving plans for retirement. It recommends that senior citizens avoid life insurance products and instead focus on plans with short lock-in periods that offer decent returns or regular income, such as equity linked savings schemes (ELSS) and tax-saving bank fixed deposits. It also discusses government backed options like the Senior Citizen Savings Scheme as good tax-saving investments for retirees due to their guaranteed returns and tax benefits.
The document provides advice to senior citizens on how to wisely choose tax-saving plans for retirement. It recommends that senior citizens avoid life insurance products and instead focus on plans with short lock-in periods that offer decent returns or regular income, such as equity linked savings schemes (ELSS) and tax-saving bank fixed deposits. It also discusses government backed options like the Senior Citizen Savings Scheme as good tax-saving investments for retirees due to their guaranteed returns and tax benefits.
tax-saving plans wisely With the start of every financial year, people start exploring all the available tax-saving opportunities to avail deductions of up to Rs 1.50 lakh under Section 80C of the Income Tax Act, 1961. However, even with an early start, they somehow get stuck in the last-minute rush, which often results in investors making wrong decisions and choosing plans that may not be the best fit for them. Sometimes investors also suffer because financial product distributors and agents — in a bid to maximize their commissions — sell products unfairly, and/or don’t really care to understand the needs of investors. There have been a few instances in the past where relationship managers of reputed private sector banks have sold single premium guaranteed return schemes to senior citizens in the form of long-term fixed deposits (FDs) bundled with insurance. These types of acts affect the senior citizens’ financial wellbeing. Serious about retirement planning? Avoid life insurance Senior citizens looking for ways to save tax before the end of the financial year are advised to avoid any life insurance product. Life insurance is vital only in your accumulation phase. You are in the accumulation phase when you are the main earner, and you have responsibilities towards the dependent members of your family. However, when you are retired and a senior citizen, your duties are automatically transferred to dependents. Your priorities during this stage of life will be capital security, regular income generation, and managing expenses related to healthcare and retirement. Thus, while searching for schemes to save tax, always keep these top priorities in mind to properly meet your liquidity requirements. You can go with plans either having a short lock-in period or with one that offers decent returns with regular returns. Equity Linked Savings Scheme (ELSS) If we take a look at tax-saving plans that are available for senior citizens, Equity Linked Savings Scheme (ELSS) — also known as tax-saving mutual funds — shines brighter with its least lock-in period of 3 years. ELSS also has the potential to offer good market-linked returns over the period of 3 years. Thus, you can choose an ELSS fund carefully after considering several quantitative and qualitative factors. Compared to other fixed income tax-saving plans like National Savings Certificate (NSC), tax-saver bank FD, Public Provident Fund, etc, ELSS has the potential to yield better market-linked returns in 3 years. However, a retiree should avoid the Systematic Investment Plan (SIP) way to invest in ELSS, because each of your SIP installments will be subject to a lock-in period of three years. Instead, consider making a lump sum investment in ELSS. When the lock-in period in ELSS is complete, the amount can be withdrawn via the Systematic Withdrawal Plan (SWP). This is a facility offered by mutual fund houses, which generates a cash inflow stream to meet retirement expenses. Apart from ELSS, having investment in 5-year Tax-saver Bank FD as well as in Senior Citizen Savings Scheme (SCSS) will also be a great option for stability and diversification purposes. Tax-saving FDs cannot be prematurely encashed before completion of at least 5 years from the date of receipt. But this lock-in is good in a way to keep the funds safe and stable. In Tax Saver FD you can invest a minimum amount of Rs 100 or its multiples, with a maximum limit of Rs 1.50 lakh in a financial year. The noticeable thing is that the interest rate varies among banks. A retiree can consider the Quarterly Interest Payout Plan or Monthly Interest Payout Plan as per liquidity needs and fund retirement expenses. The deposit can be made in one name or jointly, but the noticeable thing is that, if it is held in a joint holding, the section 80C deduction benefit is available only to the first holder who has a PAN (Permanent Account Number). Senior Citizen Savings Scheme (SCSS) Similarly, the Senior Citizen Savings Scheme (SCSS) is also a good tax- saving option for retirees. It is government-backed, and specifically designed for the empowerment and financial security of senior citizens. Additionally, it offers an interest rate of 7.40% per annum. It can be opened in an individual capacity or jointly with your spouse. The nomination facility is available before and after opening the account. The maximum lump sum deposit allowed under SCSS is Rs 15 lakh and the minimum is Rs 1,000. It is also eligible for deduction up to Rs 1.50 lakh per annum under section 80C and interest earned under SCSS is payable on a quarterly basis and is exercisable from the date of deposition till March 31st / June 30th / September 30th / December 31st. However, make sure to claim the interest on time to earn extra. While the interest earned is taxable, interest earned on bank deposits is exempt up to Rs 50,000 annually, as per the provisions of section 80 TTB. For senior citizens aged between 60 and 80 years, the exemption limit is Rs 3 lakh, and for over 80 years it is Rs 5 lakh. Union Budget 2021 & Health Insurance Citizens aged 75 years and above don’t have to file their income tax return after the Union Budget 2021 if pension and interest income is their only source of annual income. For a better tax-saving portfolio, you can follow 80:20 or 75:25 allocation to ELSS and the non-market linked tax- saving plans. You can also take a health insurance cover. Meanwhile, if there are certain diseases and disorders, you can avail a deduction of Section 80DDB of Rs 1 lakh or the actual amount spent, whichever is less. Similarly, for those who are engaged in charity, can avail deduction under section 80G of the Income Tax Act, 1961. Thus, plan your tax- saving investment wisely. It’s a very thoughtful process to choose your retirement plans and for senior citizens, it should be a very serious decision, as it is very important for the life coming ahead. Top tips to plan your finances this festive season The festive season is upon us and people are gearing up to indulge in shopping, especially after easing of state-wise restrictions. According to a recent survey by Axis My India, there has been an increase in the overall consumer sentiment by 5.5 points as 42 per cent of Indian families are looking to spend more or the same as last festive season. Another survey by Deloitte stated that consumers would be buying more discretionary goods, resume leisure travel, and are more confident about stepping out during the festive season.
Madhusudan Ekambaram, Co-Founder and CEO, KreditBee and Co-
Founder, FACE says, “Big-ticket purchases like automobiles and electronics are likely to go up in the festive season, beginning October. Consumer motivation also goes up with attractive discounts and offers available during this period.” According to industry data, for spending needs, consumers have shown an affinity towards financing options for managing debt, expenditures, and savings. Ekambaram adds, “Supporting them in this bid are the digital lenders and financial institutions, offering customized and effective financing alternatives. This allows the consumer room to spend, while not exhausting the liquidity and hindering their working capital.” That being said, while opting for financing, experts say borrowers must be mindful of certain considerations, keeping in mind the present dynamic circumstances. 1. Borrow what you can repay: It is crucial for one to aptly evaluate one’s needs and borrowing appetite. Experts say one should not get carried away with tempting discounts or a festive spirit and end up with more debt than can be handled since financing products have interest rates and other associated expenses which might pose difficulties in paying EMIs on time. “Make appropriate allocations to the capital for needs, wants, and savings. This will allow the borrowers to arrive at the role of the financed amount in the expenditures”, says Ekambaram. 2. Choose the right type of financial product: There are multiple financing products, customized to varied borrowers’ requirements. One must heed attention to parameters like tenure, amount and interest rates. Industry experts say certain products like small ticket size loans can be availed for smaller expenses or emergencies. Ekambaram, says “Online purchase loans and Buy Now Pay Later (BNPL) have emerged as products of choice for multiple borrowers’ which provide convenient financing.” 3. Compare offerings from different lenders: Considering numerous options for financing products and lenders, one should always compare to arrive at the most suitable combination for one’s financing requirement. Ekambaram points out, “Digital lenders should be compared basis parameters like their genuineness, product offerings, interests, and if any hidden charges are associated with their products.” With the growing financial awareness and prominence of digital lending, wise spending has increased. Experts say, to enjoy shopping in the festive season, borrowers should be prudent about saving and effectively evaluate various alternatives at their disposal as well as consult the lenders to arrive at the most appropriate financing product.
Out of cash by month-end? Here's how to fix
it Living pay cheque to pay cheque is a problem because you will never have any surplus to save. “In the name of ‘living in the moment and not worrying about the future’, people are tending to ignore that bank accounts will not be credited with active income after retirement. Saving and investing are necessities to maintain a good lifestyle in the future as well," said Arijit Sen, a Sebi-registered investment adviser (Sebi-RIA) and co-founder of merrymind.in. The good news is, with a fair bit of planning and discipline, it is possible to break out of living from pay cheque to pay cheque. But first, it is important to understand some common habits that lead to such a situation.We live in a society of instant gratification and spend money on things that might not have long-term value. “Trying to live the way others are living is making it hard for one to get out of a pay cheque to pay cheque cycle," said Sen. The other common reason is the reckless use of credit cards to meet family expenses and spending money that you do not have. One can get out of this cycle, though. Here is how: Make a budget: The first thing to do is to get back to basics. “Have a budget in place and get a grip on your cash flows," said Dilshad Billimoria, managing director, Dilzer Consultants Pvt. Ltd, a Sebi- RIA. A budget gives you an idea about several things like how much you need to meet household expenses, how much you can spend on lifestyle expenses, how much money goes towards your dependent children and/or parents, how much provision you need to make for insurance premiums and EMIs and the surplus you should be able to generate for investments. Next, it is critical to maintain monthly cash flows. “This exercise will reflect how much is actually getting spent on specific heads of expenses. Compare actual cash flows with the family budget (already set) at least every three months," said Sen. According to Sen, setting a budget is the easy part; the struggle is to maintain the monthly cash flow and comparing the same with the family budget for critical analysis thereafter. Cut down on expenses: You can cut down your expenses only when you know where you are spending your money. With a budget, you already know your spending. While you may not be able to reduce your basic expenses much, you can do a lot when it comes to lifestyle expenses. Sen suggests the ‘Five Why’ technique in this case. Described by Taiichi Ohno, the architect of the Toyota Production System in the 1950s, this method suggests asking why five times till one identifies the actual root of the problem. Similarly, before making a discretionary purchase, ask yourself five times why you need what you are buying. “Ask yourself why until the importance of a requirement is established. The answers reveal whether the requirement is really necessary," he said. Ditch that credit card: A credit card has lots of benefits, but the dues need to be paid on time. Even if you are paying your dues on time, having to clear off big credit card dues every month can put a strain on your finances. If you are using a credit card, it is important to ensure that there is enough money in your account to pay off the dues right when you are making a purchase. In case you have to wait for your next month’s salary to pay the dues, it can be a problem. If you are having a problem paying of high credit card dues and rolling over credit card bills, “Don’t use one!" said Billimoria. Manage your debt: “It’s good to have debt when it’s good debt like for an appreciating asset like a house or an education loan. They provide dual benefits of tax planning and ensure one can budget towards savings also," said Billimoria. However, follow the thumb rule that you should not spend more than 35% of your income on EMIs. “The primary step you need to take to come out of debt trap is to figure out how to budget and pay off debt," said Sen. Also, make it a point to avoid personal loans with high interest as much as possible.
3 things you should know about
corporate fixed deposits
With the interest rates at multi-year low, corporate fixed
deposits (FDs) which usually offer higher rates than the banks, have been gaining investor attention. Here, we look at three factors that investors should note before investing in corporate FDs. Beware of yield claims Many corporates offering fixed income products try to woo customers by advertising high yields.
For example, take the recent fixed deposit offer by Hawkins
Cookers. The company offers eight per cent interest rate for a 36-month deposit and for a cumulative deposit, the interest is being compounded monthly. Here, while the coupon rate is eight per cent, the yield on the investment will be higher.
The annualized yield is generally determined by finding out
‘rate’ in the compound interest formula - Final amount = principal (1+rate/period)^period; period in the form of number of years. By using this, the Hawkins Cookers FD yield comes to 8.3 per cent
Beware, yields announced by some of the corporates are
calculated differently, as a result of which they look higher than what they actually are.
Muthoot Capital Services’ 5-year fixed deposit, for instance,
offers eight per cent interest for the annual cumulative option.
Since the interest is being cumulated annually,the yield will be
the same as the coupon rate.. However, Muthoot has indicated that the yield on this FD is 9.39 per cent. This could be because the firm calculated yield based on the simple interest formula where Interest = Principal * Rate of interest * Period.
Thus, it is imperative to verify if the yield advertised by the
corporate is right, before falling for high advertised yields on cumulative deposits. For this, one can use the ‘Rate’ function in Excel that calculates the yield using compound interest formula. Safety aspect Looking out for an AAA rating for the corporate deposit is one way in which you can ensure higher safety levels. But a high credit rating does not mean your FD is secured or is backed by a guarantee.
Corporate FDs generally come as unsecured debt products.
Since the debt given by you is not backed by any assets of the company, investors will have little recourse in case of any default of any principal or interest by the company.
For example, DHFL fixed deposit holders had to take significant
haircut as the company went bust in 2019. The company, taken over by the Piramal group, is paying only part of the total outstanding dues to its creditors including fixed deposit holders.
Dues here will be paid under the waterfall mechanism, under
which secured creditors get the top priority followed by employees (salaries) and only after that, unsecured financial creditors like FD holders come in.
Bank FDs score higher in this aspect, as the DICGC (Deposit
Insurance and Credit Guarantee Corporation) is required to pay the depositors the insured amount of up to ₹5 lakh (inclusive of principal and interest).
Hence, it is essential that you spread your deposits across
banks, corporates and NBFCs and not put all your eggs in one basket. Stiffer lock-in rules One must keep in mind that corporate fixed deposits come with slightly more stiff withdrawal conditions than banks
For most corporate fixed deposits, one cannot withdraw the
deposit within three months from the date of deposit (unless on the unfortunate event of death of the subscriber).
If withdrawn after three months but before six months, no
interest will be payable on the fixed deposits. Even after that, a penalty of about two percent is charged by many.
On the other hand, the pre-mature withdrawal conditions for an
FD with SBI includes a penalty of 0.5 per cent (1% for deposits above Rs 5 lakh) and an interest rate 0.50 – 1 per cent below the contracted rate. However, no interest will be paid on deposits which remain for a period of less than 7 days.
For premature withdrawals, HDFC Bank levies a penalty of 1
per cent on the applicable rate. However, penalty for premature withdrawal will not be applicable for FDs booked for a tenor of 7-14 days.
Tax Free Wealth: Learn the strategies and loopholes of the wealthy on lowering taxes by leveraging Cash Value Life Insurance, 1031 Real Estate Exchanges, 401k & IRA Investing
Subject: Fundamentals of Investment Management Chapter: 18 - Non Security Forms of Investment Presented To: Prof. D. M. Parikh Presented By: Snehal Shah Roll No.: 31