Know If Your a Trader or An Investor

Many excited investors dive into the stock market without knowing the structural working of the equity market. Foremost important is knowing why he is landing into this platform. What is he expecting out of it?

Few points to know before your jump into direct buying of stocks
  1. Are you an Investor: Investor is one who invests in business for a very long time(7-10 years) Number of years being invested depends on how well you understand the business and how well the investment thesis is still valid when you have analyzed it while selecting the stock or the business.
  2. Trader: Here comes an opportunistic investor who is looking for quick gains in a shorter time period. Investors are not worried about business and are just looking for news, technical charts, and other information to make the most of it.
  3. Long Term: Officially long term is a minimum of 365 days. Investors holding a stock for a minimum of 365 days is the Long term investment. (365 days) is purely for tax purposes. Long term tax is 10% any profit from equity above 1L (One Lakh).
  4. Short Term: Officially short term is less than 365 days. Investors selling the stock within 365 days of purchase is known as short term investment. Short term tax for equity is 15% plus other taxes sum to 17%.
  5. Capital preservation: Most important parameter for any kind of investor is the money, quotes from famous billionaire investor — Warren Buffett

Rule 1: Never lose money

Rule 2: Never forget rule no 1.

  1. Borrowed money/Borrowed tip: This is the most disastrous thing waiting to happen for any investor. Never try or get into this zone.

Investors should always be prepared for what they are expecting while investing and should analyze whether they can devote more time every day to know how short term investing works.

I would advise investors to start understanding how the stock market/equity markets work or behave in different situations and start with very minimal investment to understand it better. Please do comment or give your suggestions about anything to add or want to know about anything specific.

Mutual Funds

Should You Invest In Direct or Regular Mutual Funds

Investors who are planning to invest in mutual funds might have heard about these terminologies. First, let me explain about investing in direct mutual funds vs regular mutual funds

Regular Mutual Funds: Here distributors(intermediaries) or advisors or agents sell a mutual fund. Here mutual fund companies pay commissions to intermediaries, hence expense ratio of regular funds is always on the higher side.

Direct Mutual Funds: Here mutual funds companies sell mutual funds directly on their websites, lately even companies like Paytm, Groww, Kuvera, and so on selling both direct and regular mutual funds on their platform.

What investors have in store for direct and regular mutual funds?
  1. Regular mutual funds come with an advisory note, for newbie investors going with regular mutual funds makes sense especially platforms like Scripbox.

  2. Advisors should advise very few funds into equity and debt investors do not have to go through the pain of searching good funds from more than 2500 schemes.

  3. Direct mutual funds come with lesser expense ratio which translates to better returns than regular mutual funds, which will be quite substantial gains in the long run.

  4. If investors want to view all his investments in one place and need a regular review of there funds and portfolio. Just you to go with regular funds with a good advisory platform.

  5. The expense ratio being higher on regular mutual funds does not mean it’s bad rather you get additional benefits of the transaction-related benefits like skipping current month SIP, smooth handling of bank, name, and address change request.

  6. Just avoiding regular funds to pay excess expansion ratio and buying bad directs funds without much research would be a bad decision and end up making poor returns.

Based on how well you can manage your funds decide whether you want to invest in regular or direct funds. If you have a deep understanding of how mutual funds work you can choose direct funds, else go ahead with a good advisor.


How Safe Is Your Money In Bank Fixed Deposit

Bank deposits have always been told to be safe haven, Yes it is to some extent if the amount invested is 5 Lakhs in one bank. Why is this logic? Earlier your fixed deposit guarantee only 1 Lakh on your fixed deposit or savings account. Now the insurance/guarantee has been raised up to 5L. 

Should you look for banks that pay higher interest rates.

Here risk attached to when you’re looking for banks that pay higher interest rates since these are small banks, they lure depositors with more interest to get their business going. If returns are a priority then go-ahead with these banks. Top priority should be to safeguard your deposits and expect decent returns should look for large banks where chances of a bank going bad are quite less.

Points to remember when making a bank deposit.

  1. Always look for a bank that pays out interest every quarter or half-yearly. This will have better returns in the long run. This reinvesting and compounding of money work like magic.
  2. Always look for safe, stable, and large banks where you get most of the service nearby which has a good branch network across the country.
  3. If you’re staying in metropolitan areas and tech-savvy should look for banks that provide most of the services online, this will help you save a lot of time and money. 
  4. Split the deposit amount into at least 2-3 banks, in case there are any issues, and withdrawal is an emergency. 
  5. Banks offer you zero balance saving bank account if you invest fixed deposits with them and offer other exemptions like multiple transactions without any fee and so on.

How do small banks or cooperative societies bank pay higher interest rates?

These banks tend to offer higher interest rates for deposits and lend it to a borrower at even higher rates when compared to other banks. Since most of them work under the supervision of RBI(Reserve Bank Of India) they have some breathing space to lend and borrow at high prices to run their business. 

Tax-saving Investments

Are You Saving Enough Tax By Investing In NPS?

Most investors are unaware of this tax exemption under 80CCD(1B) popularly known as NPS(National Pension Scheme). Investing in NPS comes with a lock-in until the age of 60.

What are the benefits of NPS?

  1. Can save additional tax apart from investment in 80C(1.5 Lakhs). Investors can invest up to 50 thousand to claim this tax exemption.
  2. Consider this as a retirement product as the name suggests and it comes handy at old age. Investing 50k when your earning are good is always better to have forced investment for an unseen future.
  3. Up to 60% of the accumulated money is up for withdrawal is tax-free at the age of 60.

List of Pension Fund Managers

  • HDFC Pension Management Company
  • SBI Pension Funds
  • ICICI Prudential Life Insurance Company
  • Kotak Mahindra Asset Management Company
  • LIC Pension Fund
  • UTI Retirement Solutions
  • Birla Sun Life Pension Management
The options investors have here is active or auto 
  1. Active: Here investors are choosing the % of investments into E(Equity), C(Corporate debt), G(Government Securities). Equity cannot be more than 75% of the investment.
  2. Auto: Here allocation is decided based on investors age, by default equity exposure is 50% until the age of 35 then every year 2% is reduced so as to bring to 10% at the age of 55 years. Corporate debt is 30% till the age of 35, this starts reducing by 1% to bring to 10% by the age of 55 years. Exposure in govt securities is 20% till the age of 35, this keeps increasing gradually every year. Risky investments reduce as investor age advances.

Other facts to know:

  • If investors want to withdraw before they turn 60, they have to buy 80% of the corpus into an annuity(Insurance scheme). 20% of the remaining corpus will be tax-based on the investor’s slab.
  • In the case of death, the nominee will receive all the corpus and need not buy an annuity.
  • The minimum contribution is Rs.1000 per annum to maintain the account.
  • Things to keep ready while opening NPS account Soft copy of a) PAN b) Aadhaar c) Passport size photo d) Signature on plain paper.

Investors falling under the highest tax bracket(30%) should opt for this tax-saving option in the longer run, Just to save tax do not opt any tax saving option, do understand their risk-return profile whether they suit you or not. Investments made here can be somewhere between 14-18 Lakhs if you have started late at (32 Years or earlier at 24Years). This won’t turn out to be a huge corpus but will save tax upfront and have a meaningful corpus at the age of 60.

Debt Mutual Funds

Are Debt Mutual Funds Safe To Invest?

As an investor, you must be worried about the recent crisis with Franklin Templeton’s AMC decision to wind up 6 debt funds. Now investors are stuck big time in these funds if they had invested with a viewpoint of short term investment or to get that extra profits compared to other debt funds. Always choose carefully when capital is of utmost importance and need them in a short period. Funds which got winded up

  1. Franklin India Low Duration Fund
  2. Franklin India Ultra Short Bond Fund
  3. Franklin India Short Term Income Plan
  4. Franklin India Credit Risk Fund
  5. Franklin India Dynamic Accrual Fund
  6. Franklin India Income Opportunities Fund

Franklin has stopped SIP/STP or one time investments and withdrawals from all the above funds. All these funds were holding bonds/commercial papers and other assets which were riskier in nature to earn that extra profits for investors.

What happens to my money invested in these funds?

Franklin Templeton will start liquidating their assets once the situation stabilizes and start paying lenders and unitholders, they will wait for the maturity of all the bonds and commercial papers they have held till date. The decision was taken considering the best interests of the investors.

Yes, debt mutual funds have to be examined before you invest in any of them, these years the treatment they got as safe funds is untrue unless they are holding to good assets that can be sold or brought into bad situations as well. Next, you might be thinking about how will a retail investor get to know which are best suited.

If you are looking for a short term (7-120 days) go for liquid funds where risk is lesser as compared to short or low duration funds. I have been investing with Scripbox for the last 4 years and they take care of risk and returns of all their recommended funds.

Debt funds are good if chosen well, else there is always a risk attached to investments made anywhere. You need to understand the underlying risk your willing to take. Let me know if you have any questions or suggestions.

Tax-saving Investments

Best Tax Saving Investment Ideas For 2020-2021

An investor has to plan accordingly based on the new tax regime introduced by the finance department recently for the financial year 2020-21. Recommend investors to stay with the old regime(model) of investing in tax saving instruments which will come handy in critical days, as saying goes forced saving is fruitful results at a later stage.

Under 80c we have following options for investors (Max investment for exemption 1.5 Lakhs)

a) ELSS(Equity Linked Savings Scheme): Here in this category of the mutual fund, your investment is locked-in for 3 years.

Example for SIP(Systematic Investment Plan): Investor started his SIP on 4-Jan-2015 ends on 4-Jan-2017. The first investment of 4-Jan-2015 is eligible for withdrawal on 5-Jan-2018 and the last SIP od 4-Jan-2017 is eligible for withdrawal on 5-Jan-2020.

Top funds for the financial year 2020-21

1) Axis Long Term Equity Fund(G) (Direct Fund)
Last 3 years CAGR:5.34%, absolute returns:16.90%

2) Mirae Asset Tax Saver Fund(G) (Direct Fund)
Last 3 years CAGR:3.60%, absolute returns:11.20%
Note:* Returns are post-market crash in April 2020

b) EPF(Employee Provident Fund): This is applicable for salaried professionals, who have opted for PF contribution. This gets deducted from your CTC(Cost To Company) and contributed as employee and employer.

c) HRA(House Rent Allowance): This can be availed only to salaried individuals who have an HRA component in their salary structure and are also staying in a rented house.

Note: If you are paying an annual rent of 1 Lakh and above you have to provide landlord PAN number to your employer.

d) Sukanya Samriddhi Yojana: This scheme is for girl child aged below 10 years. An account can be opened for two girl children one account per girl child and can open third if twins are involved in any of the cases.

e) LIC(Life Insurance Corporation): All kinds of premium payments towards all life insurance policies are considered under this section of 80c. Max of 10% of sum assured will be eligible for tax-deductible from April 2012. Example If the total sum assured of your policy is 2,50,000 (Two Lakh Fifty thousand). Max amount eligible for the exemption is 25000 (Twenty Five Thousand only).

f) Housing Loan Repayment Principal(Max: 1.5 Lakh): Individual repaying the principal on a home loan is eligible for this tax exemption. To claim this construction of home should be complete and if you transfer/sold the property before 5 years from the date of the year you have taken the possession, no tax benefits will be given and the year in which property is transferred/sold all the previous tax claimed amount will be taxable.

g) Fixed Deposits in Bank: Investor has to invest in tax saving fixed-deposit for 5 years to claim this tax exemption. No premature withdrawal is allowed here, although you can loans and overdraft on this investment made. Interest earned on this investment is again taxable which is not so best investment option.

h) Post Office deposits or NSC(National Saving Certificate): Again both investments in NSC and Fixed deposit in the post office are for 5 years to be eligible for tax exemption. Profit/Interest earned here will again be taxed.

i) PPF(Public Provident Fund): PPF account can be opened with any bank and the maximum amount eligible for tax exemption is (1.5 Lakhs). If your investing monthly invest before 5th to receive interest for that current month, else it will be considered next month onwards. Profit/Interest earned here compounds every year and it is completely tax-free when withdrawn. Lock-in period here is 15 years, although you can do partial withdrawal after 5 years of investment.

Always plan for your investments at the start of the financial year as this brings in discipline into your investment, above are widely used tax-saving investment options for investors. Do reply with your feedback or any suggestions.


Is It Right Time to Invest & Rebalance Your Portfolio

The current market scenario throws an opportunity for investors to rebalance their portfolio according to your goals and investment plan. Uncertainty is bad for the market but investors should utilize this to their advantage and rebalance the portfolio by dropping their non-performing or bad investment decision made when the market was inching higher with lots of hope with liquidity in the market.


Things to consider before you take any financial decision

1) Salaried professionals need to plan for their investment in the financial year 2020-2021, doing this at the start of the year is important to be taking your finances in control and avoid making any last-minute bad decisions just to avoid paying tax.

2) Firstly, have an emergency fund which is at least 6-8 months of your monthly expenses in this current scenario. If your planning to park this money in fixed deposits opt for banks that pay interest every month or quarterly this will help compound your money at a faster pace.

3) Do not skip your EMI, whether its home loans, personal loans or credit card payments reading into recent RBI announcement of the moratorium as it comes with some pain of paying more at a later stage of your repayment journey, can take this benefit only in case if cash crunch issues.

4) Your investments in fixed deposits, up for renewal in upcoming weeks have to be reviewed and invested in safe and strong banks/institutions unless your looking for that extra 0.5-0.75% higher interest rate deposits in smaller banks. Senior citizens should always invest with the safety of capital assuming these investments are there only emergency funds.

5) When thinking to invest your money, deploy only such amount which you can hold for at least the next 3-5 years. Do not pause your SIP or sell your mutual fund units at this time as long your salary is being credited, you can pause your SIP if there are cash issues but do sell your existing mutual fund units and make the virtual losses to a permanent one.

6) Investors who have invested in stocks, mutual funds have to review their portfolios. Sell if the stock/fund is doing really bad and future prospects look weak post this economic lifecycle changes, stock price correction should not be the criteria for investors to sell the stock or buy any stock. It has to be thoroughly understood whether it has near term problems to be faced or deviates from long term investment philosophy.

Always monitor your portfolio on a quarterly and yearly basis, which will help you to know where you stand to achieve your short term and long term goals. Do comment with your valuable suggestions and feedback.