The budget brings a bag of amendments along and there begins a never-ending discussion of whether these are good news or not. So like every other year, this year, the Budget introduced some of the peculiar changes in existing Income Tax Laws which will certainly impact your pocket from the start of the coming financial year.
So we decided to sum up everything that could knock your pockets from April 1st, 2021. Hope this article will help everyone looking for amendments affecting or impacting their pockets from April 1st.
Introduction of new wage code
This Budget came with the New-Wage Code which dictates that the basic component in the Salary structure should be at least 50%. Currently, companies have a practice of capping the basic pay around 25-40%, however, with the introduction of the New-Wage Code, Basic Component will be a minimum of 50%.
Implementation of the same may yield interesting results. Capping the basic pay at 50% would mean that other allowances like HRA etc. are capped at 50% altogether. Pay packages will definitely witness a rejig in the salary structure since there are also other rules like PF rules and gratuity which will change with this Budget.
Related Article: Checklist for your Investment portfolio in 2021
1. Provident Fund Rules and Regulations
The Budget has announced certain changes in EPF rules too. Currently, the Employees Provident Fund comes with the tax status of EEE. Contribution to Employee’s Provident Fund as well as the proceeds from the EPF are tax-free.
However, with this budget, contribution above Rs. 2.5 lakhs towards EPF would be covered under Income Tax.
If the employer provides the option of opting for NPS (National Pension Scheme) as an alternative for tax saving over and above the contribution of Rs.2.5 lakhs, then only the employee would be able to save tax.
This rule is also applicable to the Voluntary Provident Fund (VPF). Hence, if the contribution at any time, considering both EPF and VPF exceeds rs. 2.5 lakhs then the excess would be charged to Income tax from now onwards.
2. Pinch to Income Tax Returns Non-filers
Respected Finance Minister Ms. Nirmala Sitharaman made it plenty clear that the Income Tax is widening its scope and coverage. One more hint is the insertion of section 206AB, which basically deals with the highest rate of TDS for non-filers of Income Tax Returns. Additionally, the highest rate of TCS is dictated by section 206CCA.
This move is expected to bring the non-filers also into the Income Tax net. Mass filing of ITR would definitely result in improvement in the transparent process of ITR.
3. Prefilled Income Tax Returns are a reality now
ITR filing for capital gain is very complex and time-consuming especially for shares and mutual fund trading. However, this year brings a welcome change to this set process. Finance Minister has announced the entry of prefilled Income Tax Return w.r.t following
- Income under the head “Capital Gain” from the sale of listed securities.
- Income from dividend
- Interest Income from Bank fixed deposits
- Interest Income from Post Office
This will achieve ease of filing as well as will ensure that no income escapes the taxability.
4. Leave Travel Concession in COVID-19 backdrop
The year 2020 has been harsh to everyone and hence the Respected Finance Minister has announced a change in LTC (Leave Travel Concession) in this year’s Budget.
This year would be in the form of a cash allowance rather than a regular LTC scheme due to the COVID-19 impact.
This scheme will be exercised in the block of 4 years of 2018-2021. LTC was available only on travel expenditure earlier. But in 2021, the employees are allowed to take an exemption of the amount spent on buying the specified goods and services as notified. It is required that the money should have been spent on goods and services through electronic mode and from 12th October 2020 to 31st March 2021. However, this scheme specifies the upper cap on the expenditure as well.
5. Gratuity is Good News after all
Gratuity was previously applicable only if you were onboarded on the payroll of the company. It required that the employees should complete a minimum period of employment before becoming eligible for gratuity payment.
However, with new Gratuity rules, even if the employee works on contract even for a year, then he would be eligible for the gratuity. This change is considered a welcome move.
6. Changes in ULIP contribution
This Budget has brought in the new and much-awaited news from the perspective of the private players in the mutual fund markets. ULIPs were totally exempt and considered under EEE tax status.
However, with these budget amendments, the tax would be levied on capital gains at par with mutual funds, which is at 10% on the amount exceeding Rs.1 lakhs. However, ULIPs are taxable only if the annual premium amount increases by 2.5 lakhs. Due to this amendment, ULIPs no longer would be lucrative as compared to Mutual Funds in tax scenarios.
Important pointers to deal with the changes
- Check if the salary pay package is changing as per the wage code and make necessary changes for maintaining the liquidity position all along.
- Reconsider the Employees Provident Fund and Voluntary Provident Fund contributions so as to mitigate the tax liability brought in by the budget.
- Check with the employer whether LTC claims are entertained and what are the eligible goods and services for which they can be availed.
- If you are a contract employee, ensure that you will at least complete a year to be eligible for gratuity.
- Consider reorganizing the tax investments for availing deductions in line with amendments, especially w.r.t ULIPs, EPF contribution, etc.
- Always ensure to file ITR on or before the due date to avoid the highest rate of Interest.
This step-by-step guide empowers you to take action by building a complete financial portfolio. This means that not only do you own diversified investments across different asset classes, but you also have fully-funded retirement accounts, own your home, are debt-free, have a six-month emergency cash reserve, and you invest in yourself. Ensuring that each of these areas is optimized will set you up for financial success.
1. Review Your Spending in 2020
There are plenty of good alternatives to review and check the spending patterns. Whatever tool you use, it’s important to review your spending over an entire year. It may reveal patterns that you miss when looking at a monthly budget.
The first thing is to review where our money went.
- Did we spend our money in ways consistent with our goals?
- Did we overspend in some categories, or perhaps underspend in others?
- Do we want to make any adjustments in the new year?
The second thing is whether there were any periodic or unexpected expenses in the past year that we weren’t prepared for. Sometimes that can happen for reasons beyond your control. In 2020 that was the case for a lot of people.
The third thing to look at is all of the subscription services that we’ve signed up for. The number of these services seems to grow every year. These services range from streaming video to credit monitoring to news outlets. Once a year, list out all subscriptions and confirm that we still want each service. If not, then cancel it.
2. Update Your Net Worth Statement
The very first thing to do at the end of every year is to update our net worth statement. A net worth statement represents a snapshot of your finances, listing everything that you own (assets) and everything that you owe (liabilities). The difference is your net worth (assuming the difference is positive!).
A net worth statement reflects every single financial decision you’ve ever made in your entire life. And it’s the most important financial document to track. It’s important to compare where you are now not only with goals you’ve set for the future but also with where you’ve come from in the past. Seeing the progress, you’ve made over the years can help motivate you to reach your goals.
We can track our net worth statement cash and those assets that go up in value over time. So we include all of our investments, all of our bank accounts and our home. We don’t include things that overtime depreciate, such as a car. For liabilities, we keep track of all of our debt.
3. Rebalance Your Investment Portfolio
The start of a new year is a great time to rebalance your portfolio. Particularly after the wild ride, we had in 2020, it’s likely that many portfolios have drifted substantially from the planned asset allocation.
Rebalancing may not necessarily mean that we have to divert the funds to multiple investment alternatives blindly. Just to give an example, if you are already invested in plain vanilla investments like PPF etc., it is time to jump into some action. You may want to invest in mutual funds or stocks to take leverage of the risk factor and gain an edge over the earnings.
4. Check Your Investment Expenses
What is the expense ratio of every mutual fund you own? Or what is the weighted average cost of all of the funds in your portfolio? If you don’t know the answer to these questions, it’s worth taking a few minutes to find out.
However, you do it, use this time to make sure you aren’t paying more than you should for your investments. Sometimes, it may so happen that administration cost for maintenance and operation would take away a huge chunk of your earnings. The expense ratio is a great perimeter to observe this gap in the case of mutual funds.
5. Check Your Retirement Contributions
The start of a new year is also a perfect time to reevaluate your retirement contributions. If you aren’t taking full advantage of an employer match, consider increasing your contributions. Even if the increase is small, at least you’re making progress in the right direction.
6. Simplify Your Finances
Finally, now is a good time to simplify your finances. Countless retirement accounts, bank accounts and financial apps can make managing our finances more difficult. So, create a list of all the accounts, apps and tools you have. Then go down the list one by one to determine if you really need each one. Consolidate investment accounts where it makes sense. Remove any apps you didn’t use last year. And in the process, streamline how you manage your money. It just may remove some of the stress money can sometimes create.
Portfolio management is not a day’s work. It is a disciplined and planned approach to handle the funds that you have to optimal and appropriate use. Always keep in mind as to what they say, “If you don’t make your money while you sleep then you will need to work till you die.”
The easiest way to make the money work while you sleep is to automate the investments and exercise full control over the finances. The pointers above may guide you to pave the way towards a better financial future with an optimal portfolio in the year 2021. Be tuned to read more such interesting articles. Till then, Happy Investing!
Timing the Market vs Time in the Market: Mr. Sharma was very much worried about the stock market would fluctuate and so will his returns. He said “I am thinking whether I entered the markets at right time. Right now, markets are volatile and can’t be timed for a better entry point”
I refuted him, “No investor can time the market for correct entry or exit point. Due to the dynamic nature of the markets, it is better to wait and hold the stock for the right time rather than timing the right entry or exit points in the stock markets.”
“Well, now I am confused, aren’t those both the same things?” Mr. Sharma said.
“Not at all, these are totally different strategies and give different results. I will help you understand these.”
Who is a perfect investor?
A perfect investor is the one who can buy a stock at its lowest price level and sell at its highest price level. This perfect investor is a myth. Time plays a very vital role in choosing an investment strategy. Fluctuating markets reflect promising returns and many of us get attracted by short-term numbers showing high gains. In the short term, markets are generally volatile, while in the long run, investments exhibit stable behaviour and deliver consistent returns.
The market moves in the most unpredictable ways in the short run, but in the long run, there is much more predictability. Before investing hard-earned funds, one needs to understand the working of markets and the risks associated with investing, which is not easily possible with short-term investments. Investment objectives might differ from person to person, but everyone intends to get good returns.
Related Article: Impact of having Domestic stock in your Portfolio
What is Market Timing?
Market timing is an investing strategy in which the investor tries to identify the best times to enter and exit the market. This can result in higher returns than other strategies. However, there are risks involved. Changes in a market trend can appear suddenly and almost randomly, making the risk of misjudgment significant. Regular evaluations are necessary as this strategy involves active monitoring of funds invested. Timing the market requires many, many correct guesses – when to get in when to get out when to go back in again and it is a continuous process. The probability of making correct guesses most of the time is quite low.
What is Time in the Market?
This investment strategy is also called Buy and Hold investing, however, it doesn’t mean ignoring your investments. Here, the investor focuses on buying quality stocks and holding them for a longer-term. Here, the investor intends to pick a good stock at a fair value rather than an average stock with a great valuation. The longer you stay invested, the lower is the risk of losing funds. Long-term investments ensure consistency against speculative gains. Successful investors base their actions on deep research rather than random market ups and downs. However, it is advised to monitor your investments regularly.
What do we understand as the difference between time and timing? To understand this difference, one needs to look at the difference between speculation and investing. Speculation is trying to take a bet on the future direction of the market and positioning your trades accordingly. On the other hand, investing is all about focusing on the quality of the asset and holding on to it for the longer term. That is the fundamental difference between the timing of the market and time in the market. When you try timing the market you are effectively speculating on the market direction.
Why does time in the market work better than timing the market?
- In the short run, a stock market is a slotting machine but in the long run the stock market is a weighing machine. Over a longer period of time, quality stocks held on tend to outperform any kind of aggressive strategy for timing the market. Over the longer run, the vagaries of the markets tend to get smoothened.
- Transaction costs make a big difference to a timing strategy. When we talk of transaction costs, we refer to brokerage, statutory costs, taxes, exit loads in case of mutual funds etc. When you add all these up the actual economics of timing the market can change quite drastically.
- Timing the market is very vulnerable to the handful of good days and bad days in the market. Over a period of 10-15 years, there will be days when the markets will either spurt sharply or correct sharply. In the process of timing the market if you miss out on these good days or if you happen to buy on the bad days, your timing concept can grossly underperform. This is what actually happens when you try to time the market.
- When you try to time the market, you tend to get carried away by the hype in the media and the analyst community. Normally, the media and the analyst community tend to create a sense of hysteria around stocks which may not really materialize. That hysteria is essential to create interest but, in the process, you may end up hurting your portfolio.
- Time in the market gives you a sense of perspective. When you time the market, you tend to get too involved with the market vagaries at a short-term level. Instead, if you take a longer-term approach you are able to invest when valuations are attractive and vice versa. This sense of perspective works in favour of time in the market over timing.
So, clearly, Mr. Sharma should approach time rather than timing. Markets have proven time and again that passive, long-term investing without any attempt to time the market would be the superior choice.
In India, buying gold is more of a tradition than just investing. It is considered as a symbol of prosperity and luck. This auspicious metal has given good returns over the long term. When you create your wealth portfolio, it is suggested to allocate atleast 10-15% to Gold investment. This is majorly because this yellow metal is used to hedge against inflation and is also negatively co-related to stock market investments.
In other words, we can say that gold protects your portfolio from high volatility of equity markets. Thus it provides stability to your portfolio and often proves fruitful in times of crises.
How to invest in Gold?
There are multiple ways of getting exposure to gold asset class. Some of these are physical gold jewellery, sovereign gold bonds, Gold Mutual funds and Gold ETF.
For investment purpose, physical gold does not make much sense owing to high making charges and lack of safety.
If we talk about Sovereign Gold bonds (SGB), it is one of the best investment to increase your allocation to gold. However, it is suitable only to those investors who has a time horizon of 8 years. It comes with a lock-in period of 8 years and post which on maturity, the capital gains are tax free. Not only this, apart from capital gains, you are also entitled to receive interest of 2.5% p.a. These unique features make investment in SGB bonds very attractive.
If we see on the flip side, there are two major drawbacks of investing in SGB bonds. First is availability and second is liquidity. One can invest in these bonds only when it is available for subscription.
For an investor, who is looking for liquidity, Gold mutual funds and Gold ETFs will be the best option. It is considered better as you can invest here anytime of the year. It simplifies the entire gold investment process.
Investors often get confused between Gold Mutual fund and Gold ETF? Are you also getting a question in your mind – which is better Gold Mutual fund or Gold ETF?
If yes, let us discuss these two options in detail.
Gold Exchange Traded Funds invest in physical gold. The aim of Gold ETF is to track the price of domestic physical gold and invest in 99.5% purity gold bullion. Each unit of a gold ETF is equal to 1gm of gold. It is essential to note that it is backed by physical gold of very high purity which is stored in secured vaults.
These are listed on stock exchange and one can buy and sell gold ETF like stocks. Thus, it provides ample liquidity. Since ETFs are held in demat form, you need to have a demat account to invest in Gold ETFs.
Gold Mutual Funds
A gold mutual fund is an open-ended mutual fund scheme investing in units of gold ETFs. This does not require any demat account. Like any other mutual fund, there is complete flexibility and one can invest and redeem from gold funds anytime.
We can also say that Gold MFs are investing in Gold ETFs itself but indirectly.
Related article : Know Your Expenses When You Go For A Mutual Fund Investment
Gold MF Vs Gold ETF
Now that we are clear with the basic understanding, let us see the comparison between both of these options.
- Cost – Investing in gold MF via broker is a little expensive compared to gold ETF.
- Price – Gold MF units are priced at their respective NAV similar to any other mutual funds. NAV is updated on AMFI website on a daily basis from Monday to Friday. Price of gold ETF on the other hand is updated on real time basis just like stocks.
- Mode of investment – SIP is available for Gold mutual funds whereas gold ETFs are not SIP based. You can still invest in gold ETF on a monthly basis to accumulate units. If you are a layman investor, it will be easy to invest in Gold Mutual fund. For seasoned investors who can study the market and take effective decisions on investments, Gold ETFs will be a better choice.
- Type of Investment – Gold MFs invest in gold as well as other liquid funds. However, Gold ETFs invests almost 100% in pure gold and very minimal balance in debt.
- Liquidity – Both these gold investment avenues are highly liquid. But some Gold mutual funds comes with an exit load which differs from fund to fund. Gold ETF has an edge here as there is no exit load.
- Transferability – Gold ETF can be converted into precious metal whenever needed unlike gold mutual funds.
With this, we hope you now have a better clarity to distinguish between Gold ETF and Gold mutual fund. If your portfolio doesn’t have 10-15% allocation to gold, it is highly recommended that you do so now.
As we are heading close to year-end, it is imperative to check if you have made the required investments to save tax. If you have not done any tax planning for FY 2020-21 yet, it’s time to make a decision as we are already entering the month of December. You should not keep these tax-saving investments till the last moment i.e. 31st March 2021. The earlier you do it, the better it is.
Mr. Gupta is one of the taxpayers who has not yet made up his mind as to where to put his money to save taxes. In order to save taxes, we all are aware of the most common section i.e. 80C. Right?
Options available to Mr. Gupta
Under section 80C of the Income Tax Act, Government gives us many options to claim tax benefits. Some of these are on expenditures incurred and some are on investments made. Mr. Gupta is not eligible to claim any expenditures under 80C as he neither has any home loan nor any tuition fees expenditure for children.
So the only option left with him to fully utilize section 80C is to make certain investments that are eligible for this deduction. You must be aware that the maximum tax benefit available under section 80C is Rs. 1,50,000. He already contributes Rs. 21,600 towards PF and has a term insurance premium of Rs. 25,000. Thus, keeping in mind his PF contribution and term insurance premium, the remaining amount of Rs. 1,03,400/- can be invested to claim 80C fully.
After going through various investments like PPF, ELSS, Sukanya Samriddhi Yojna, FD, traditional insurance policies, he decided to select either ELSS or FD. He is confused between these two.
Are you also confused between ELSS and FD to save your taxes, then read on to get clarity as to what is suggested for Mr. Gupta? Each of these two options comes with its own set of pros and cons as well as risks and returns.
Let us first understand these options in detail.
Equity Linked Saving Scheme
ELSS is a type of equity mutual fund. You must know that this is the only mutual fund that offers a tax benefit under section 80C. Equity linked saving scheme is a diversified equity mutual fund with a lock-in period of 3 years.
All the investments that are part of 80C have some or the other lock-in period. The major advantage of the ELSS fund is that it has the least lock-in period of just 3 years as compared to all the other options available.
Since budget 2018, the tax rules regarding ELSS funds have changed. The long term capital gains from ELSS funds are taxed at 10% without indexation benefit. This rate is applicable only if the gain amount exceeds 1 lac. If it doesn’t exceed 1 lac then it is totally tax-free.
As the money is invested in stock markets and fund managers know that investors can not withdraw the money for 3 years, ELSS funds provide much better returns as fund managers can take a call of investments without the fear of investors withdrawing their money which happens in other types of mutual funds. It is a market-linked investment avenue and if invested for the long term i.e. more than 3 years, it can prove to aid in creating wealth.
Another interesting point to note here is that the returns from ELSS funds are often in double digits and easily beats inflation in the long run. Thus, it can be said that it delivers superior returns if we compare it to other tax saving instruments.
Here, we are not talking about the usual bank FDs but we are focussing on Tax Saving FDs. Tax saving FDs come with a lock in period of 5 years and with an objective to offer deduction under section 80C. However, in case of emergencies, you can avail a loan against your FD.
It is important to know that the interest received on such FDs is fully taxable as per the individual’s tax slab.
Unlike ELSS, it is a traditional investment instrument and not market-linked. Although it is not exposed to market risk, there is still a default risk. All deposits of account holders of banks are insured up to a maximum limit of 5 lakhs.
What should Mr. Gupta do?
Before making any investment whether for tax saving or not, one should consider factors like age, investment horizon, and risk appetite.
Mr. Gupta is 40 years old with an investment horizon of 6 years for a goal of international vacation. Considering that this goal is not a necessity but more of a desire, Mr. Gupta can take more risk and thus have a high-risk appetite.
Keeping these things in mind, it is suggested that Mr. Gupta opts for an ELSS investment over FD. He can either invest a lump sum or do it as SIP for these remaining 4 months of the FY 20-21. It will serve him as a dual benefit of wealth accumulation as well as tax benefits.
Related Article: 5 Factors To Consider While Making Lump-Sum Mutual Fund Investment
If you, on the other hand, are a risk-averse person and capital protection is of utmost priority to you, then it is recommended that you opt for a fixed deposit over ELSS. You must be aware that because of the low-interest rate and not-so-tax-friendly option, you won’t be able to accumulate much if you solely depend on FDs as your preferred investments.
Investors approaching retirement must consider investing in safer investment i.e. tax saving FD. This is because they tend to have low risks and guaranteed returns. In a nutshell, you must always select an investment scheme based on your financial goals and risk profile.
When it comes to investing in the stock market, it is always better to become a long term investor rather than becoming a trader. It is relatively highly risky to do intraday trading or trade in futures and options. As an investor, one should focus on creating long term wealth through equity markets and not just short term gains which are based merely on chance. We all understand that gambling only works when luck is on your side. So why get into all that and expose your money to greater chances of loss.
Stock market is no doubt an amazing investment avenue to create wealth if used in the right way. One needs to make informed decisions regarding financial investments. When we say stock market, it does not only mean Indian Stock Market. Investing in stocks is like investing in companies that you have confidence that will grow in the future. This means not only Indian companies but also international stocks have a great scope in growth when it comes to stock investing.
What are the goods and services you use on a daily basis?
Think about watching movies on Netflix, placing orders on Amazon, using an Apple’s iPhone or the most used search engine – Google. All these companies are based internationally and are listed on international stock exchanges.
Don’t you want to invest in these companies, the product/services of which you are using intensively on a regular basis?
So, in keeping with the view of going global, let us see some benefits of investing internationally.
This is one of the most important benefit of all as there is a tendency of investing a major part of the portfolio in Indian/ domestic equity market. Investors usually ignore the benefits of diversification into the international equity market owing to unfamiliarity. In India, approximately 99% of investors invest only in Indian stock market which indicates resistance to invest globally.
Another fact is that India accounts for only 3% of the global market capitalization. It means even if you think you are diversifying your money among different sectors, you are only being exposed to a tiny part of what the world is offering.
The major problem with restricting yourself to only domestic markets is that it raises your portfolio’s concentration risk of investing in just one economy.
The strategy should be to diversify your investments across nations whose market cycles are not perfectly correlated. As we all know, there is volatility in stock markets. Thus, it is recommended to not make all your investments in a particular region.
If your money is spread out among various countries, then an economic crash in one country won’t affect other investments. A globally diversified portfolio helps you take advantage of market cycles in different countries and better manage the risk.
Related Article: 10 Tips to Raise Equity Investment in 2020-21
Some of the other benefits are:
- More options to invest: Investing in global markets will open a plethora of different stocks to invest in. With proper research, one can shortlist the stocks. Currently, many equity investment opportunities are in sectors that are not available on Indian stock exchanges. These sectors include Consumer Internet such as Facebook, E-commerce giants such as Amazon, Consumer brands such as Nike, and Payments such as Visa and MasterCard.
- More ways to invest: There are also many ways by which you can invest globally. These are direct stock investments, ETFs, and mutual funds. On one hand, mutual funds are the easiest way for investors to have international exposure. On the other hand, it takes a little more advanced knowledge to invest in ETFs.
- Mutual Fund route: One of the compelling reasons to invest globally is “It is very simple”. It is convenient to do so easily through mutual funds. You can opt for this route if you are a comparatively conservative investor. Fund houses offer international funds where you can leverage the expertise of global fund managers. Many Indian fund houses have schemes like fund of funds that invest in overseas equities. You can invest in these funds like any other mutual fund. You can also invest via the SIP route, with a minimum of Rs. 500 per month.
- Protection/Insurance – No need to worry about the safety of your money invested in international markets. When investing abroad, many financial institutions are able to protect your investments. For example, if you are looking to invest in US markets, Securities Investor Protection Corporation provides insurance to your account up to $5,00,000. Please note that it is not applicable to general losses in the stock market.
- Confidentiality– Global investments come with confidentiality concerns about your finances. International financial institutions are not legally required to divulge your monetary details to anyone. So you can consider your information to be safe at all times.
- More Growth – It is expected that your portfolio will show better growth when exposed to international stocks. The combination of Indian and international stocks will work best in your favor. There is an increased return potential in overseas investments.
- Currency Risk – Another reason is to take advantage of the depreciating currency. It is a good idea to have a globally diversified portfolio. As it is suggested to diversify your portfolio among different economies, internationally diversified portfolios will also be exposed to different currencies from country to country.
- Tax-efficient – Attractive tax incentives are offered by many countries across the world to foreign investors. These incentives are subject to strengthen other country’s investing environments as well as attract outside wealth. These incentives or benefits differ from country to country.
- Lower and better-managed Risk – Another crucial argument in favor of global investing is that different markets have different risk levels. Developed markets tend to have a lower risk. Also, one should be aware that different markets behave differently. Thus, it offers the scope of returning better risk-adjusted returns.
Related Article : 4 Important Financial ratios to check before Investing
In today’s world of interconnectivity, nothing seems to be out of reach in the world. You can buy from any part of the world even if you are in the remotest corners of the globe. But when it comes to investing, why do we resist going global? Adding a global flavour to your current investments will truly diversify your portfolio, unlike a portfolio which has invested 100% into Indian markets that only provides partial diversification.
Having said all of the above, it is highly recommended to consult a financial advisor to get a learned understanding of various global economies and markets. This way you will make informed global investments, which is always better than the “All eggs in one basket” approach. Start Diversifying! Start investing!
Investing is not everyone’s cup of tea. Some can manage on their own and some do not know the basics of investing. To invest, one has to first set their mind to it, so they can start saving. It’s very difficult for some to start saving, because they may not be earning that much also. But now, you don’t need to be rich to invest. The minimum amount starts from Rs. 500/- only. So you can start small and increase the amount little by little.
People realize very late the importance of saving and investing. Children should be taught to save from small. So, as they grow they realize the importance of it. Some parents give their children everything they ask for, sometimes things that are not even required. This makes the children dependent on their parents for everything and they don’t see the need to save.
Investing works step wise, as you can see below:
1st step: Earning
2nd step: Saving
3rd step: Invest
4th step: maturity fund (can be reinvested)
For beginners to start investing, it is a task, especially those who have no idea about investments. To get into the habit of investing, one has to start saving. The things that we want, well the list is never ending. So, trying to fulfill all our wishes, we forget that savings is also necessary. Once a person starts saving, it becomes a habit and their investments increase too.
One big advantage of paying taxes is that, people have to invest to save their taxes. This is a very good opportunity, because it will indirectly put in the habit of saving. It is always better to start early, since you can take risks at an earlier age. It is not so in the case of older people, they can’t take a risk with their money, as they are coming closer to retirement and they need all the funds, they can get.
Related Article : 8 Common Investment Mistakes You Must Avoid
Boosters that help beginners to start investing:
- Savings: It is hard to save when there are so many things that you want to buy. There’s a way you can balance both out. Make a list of things and write them priority wise. Then you can divide it in the coming months, according to when you want it. At the same time, the money that your saving from buying the other things, can be invested. You do not need to invest in complicated investments. You can start with investments in debt or equity mutual funds.
Future Goals: Investing helps one in the future. All of us have goals in life, most of them require money. It doesn’t mean that just because you don’t have goals, you don’t need to save. As your earning increases, your purchasing capacity also increases, which in turn increases your goals as well. So it’s always better to start saving early, so that it becomes easier to fund your future goals.
- Tax Benefit: If your earning a good salary at a young age, then you are bound to come in the tax bracket. This gives a boost to the people to invest in different tax saving avenues, which automatically in builds a saving habit. So if you invest the maximum amount and use the tax saving tools to the maximum, you can bring the tax to nil.
- Emergency Fund: No one ever realizes the importance of keeping an emergency fund. You never know what can pop up. For example, If a person looses his job, he will have to survive on some funds till he gets back on his feet. Another example is falling sick or getting diagnosed with a dangerous disease. So emergency fund is very necessary as it acts like a backup to fund unfortunate situations.
- No Begging And Borrowing: we all have experienced the feeling of not having money and then begging and borrowing. No one likes to beg or borrow. It’s another feeling altogether when you are earning and spending for your own needs. Start saving now and it will help you pay for your own expenses, so why be in debt of someone else, when you can fend for yourself.
- Financially Independent: Having your own savings and investments, reduces the financial burden for your family and it leaves you financially independent. This way you do not have to worry about funding your goals. No one likes to keep asking their parents for money again and again. It gives one a proud feeling to be financially independent.
It’s not at all difficult to start saving, it all depends on our mindset. If we put our mind to it, we can save. Investing has many benefits which youngsters don’t know about. At that age, life is all about enjoyment, which is true and one should enjoy life, but it is also important to plan for the future. So invest and stay financially healthy!
Health insurance cover is the most crucial to have especially at this point of time when the entire world is experiencing the wrath of Coronavirus. In the modern era of inflation, it becomes imperative to seek out a decent health insurance cover especially if you wish to safeguard yourself as well as your loved ones from falling prey to skyrocketing healthcare expenses. Apart from providing you with adequate peace of mind, it also offers the best chance of recovering back both physically and financially if anything unfortunate happens.
Getting a health protection as early as possible is becoming extremely important as once you succumb to issues such as diabetes or blood pressure, your insurance cost starts getting high while the coverage gets low. Today we are going to take you through the most important considerations which can help you in choosing the right cover.
The emphasis on importance of having the right and adequate health insurance plan is never enough.
There is always a lot of confusion about which health insurance plan is best and which one suits our needs. The major reason for this confusion is diversity of features among different insurance providers and their products. There are so many things and fine print that one needs to check before buying a health insurance plan.
Let us start with the very basics.
Types of Health plans
So there are two types of health insurance plans available in the market. These are:-
- Indemnity Plans
- Benefit plans
Let us discuss each of these two in detail : –
- Indemnity plans
Indemnity means to make good the loss. The objective of this type of plan is that it makes sure that you do not have to spend on the medical treatments from your own funds. This plan ensures this by two ways :-
- Reimbursement -It reimburses the cost of medical treatment in a hospital. Reimbursement means first you need to pay all the expenses incurred in the hospital and after showing proof of the expenses by way of bills etc, the insurance company reimburses you.
- Cashless treatment – This is the most common one and you might already be aware of this. Here, you don’t have to pay anything from your pocket; the bills of the hospitals are directly paid by the insurance company through TPAs. This facility is available to all the network hospitals of the insurance provider.
I would say almost all the times, the hospital near you will be covered in a list of network hospital and you can avail the cash less facility. However, if not then you can opt for reimbursement. So it is always better to check the list of network hospitals before buying an insurance policy.
For example, if a policyholder chooses a sum insured amount of Rs.4 lakhs and is presented with a hospitalization bill amounting to Rs.1.5 lakhs, the insurance company will pay out Rs.1.5 lakhs to the policyholder. This is what happens in indemnity based plan.
I hope you are now clear with indemnity pans. In short, this plan settles the claim based on your expenses incurred either by reimbursement or cashless. This claim cannot exceed your sum insured. These plans also cover a wide range of treatments and illnesses and cover the actual amount of the hospital bill.
On the other hand, benefit plans pays out a fixed amount to the insured on diagnose of a particular disease for which he is insured irrespective of the expenses incurred or about to incur. This means you can spend this amount received from insurance company however you want and not necessarily the hospital expenses.
When a person is diagnosed with a critical illness, not only he incurs the hospitalization expenses but also suffer by loss of income owing to inability to work. The benefit plans gives you the flexibility to use the money as you want.
For example, if a policyholder chooses a sum insured amount of Rs.4 lakhs and is diagnosed with a critical illness then insurance company pays you the entire sum insured of 4 lakhs. Doctor’s certificate and report is required to prove diagnosis. Now even if the he is presented with a hospitalization bill amounting to Rs.1.5 lakhs, the insurance company will pay out entire Rs.4 lakhs to the policyholder. This is what happens in benefit based plan.
Now based on the above two types, let us see the different types of health insurance plans available in the market:-
- Comprehensive health insurance Plan – It is a Indemnity based plan which is available as individual plan as well as family floater. These are offered by general / health insurance companies only.
- Critical Illness Plan – It is a benefit based plan which is available only for individuals not as family floater. There are some plans which are comprehensive which covers a number of critical illnesses and there are plans which cover only one particular critical illness like cancer. Also, note that these plans are often offered as a rider as well. Thus, it is offered by both life and general insurance companies.
- Corona Specific Plans
IRDAI had recently mandated insurance companies to offer short-term health plans that will cover hospitalisation expenses related to the treatment of COVID-19. This will assist individuals buy specific health cover for meeting hospital costs due to coronavirus.
There are two such plans – Cororna Kavatch and Corona Rakshak. Both of these policies are short term health insurance plans meant for Covid-19 related hospital expenses. One of the major benefit of these policies is that your no claim bonus of existing comprehensive cover will not be impacted due to COVID-19 claims.
- Corona kavatch – It is an indemnity plan offered by general and health insurers only. Minimum cover – 50,000, Maximum Cover -5 lacs. It is available in both individual and family floater Option. You can get to add hospital daily cash of 0.5% of SA per day
- Corona Rakshak – It is a benefit plan offered by both life and general insurers. Minimum cover – 50,000, Maximum Cover -2.5 lacs. It is available as only individual plan. It requires an hospitalization of 72 hours.
It is suggested to not buy corona specific in place of comprehensive cover but rather it should be like a supplementary cover. It is recommended that one should have a comprehensive indemnity based cover with a benefit based cover as well. Both the plans have their own unique features.
Stay safe and be insured.
Every insured person always have this worry. Everyone remains a little concerned over this. Will the insurer settle my claim as per the policy terms? Is there any hidden condition that can actually prevent me from getting my claim in the right time? Is there any activity or possible loopholes in the process that can negatively affect claim settlement? All these worries and concerns are common.
Here you Read Complete guide on Covid-19 Medical Insurance
Yes, rejection of claims is not rare and you have sufficient reason to be concerned over this. Claim settlement is the most crucial part of a insurance policy that no insured person can take lightly. Let us try to answer all your concerns with a single remark. If you have followed the process as it is required starting from filling out the form with right information to attending medical tests to paying timely premiums and applying for the claim in right time, nothing can obstruct you from getting your claim.
Here we are going to provide 7 most important tips to make your claim settlement smooth and absolutely hassle free. These are the time tested and tried principles that worked for most insured persons around the world in regard to claim settlement.
1. You Should Not Put Full Trust On Insurance Agent
When applying for a insurance policy often we are carried away by the rosy side of the proposed benefits and just forget to ask about all the things on the flip side. This happens particularly when we put too much trust on the insurance agent. While you have to listen to what he has to say about the policy you nevertheless should verify all the statements made by him and read the policy details and form in detail before coming to a decision. Most claims that are rejected are resulted from a hurried decision and forms filled up in haste. Any wrong information or inadequate information can lead to rejection of claim. So, instead of filling up the form in a jiffy just read the fine prints carefully and make sure it is filled up without missing any vital information.
2. Stay Away From Giving Incorrect Information
Insurance company is trusting you as per the information provided by you and promising you an insurance sum as per the policy terms. Naturally, any wrong or inadequate information furnished by you is equal to a breach of trust that can lead to the rejection of claim. It is your duty to furnish all the necessary information to the insurer and in case you do not fulfill this obligation, the company does not have the obligation to pay the claim amount. Naturally, you need to be perfect in your position and provide all correct information asked for.
3. Disclose Your Medical History
In any insurance policy the prime evaluation on the basis of which a proposed sum assured or insurance benefit is determined is the assessment of risk. The medical history of you and your family is crucial to assess the risk involved in insurance policies. This is why disclosing the medical history in detail is so crucial to get your claims at any moment of contingency. From your habit of substance abuse like tobacco or alcohol consumption to any instances of prior medical treatment or diseases, you need to disclose all your health and medical data to the insurer at the time of applying for the insurance coverage.
4. Do Not Avoid Medical Tests
The underwriter in insurance company assess the risk involved in an insurance policy based on the information furnished by the applicant. Now, in certain cases where there is larger risk involved due to higher sum insured value or any possibility of medical risks, the applicant may be summoned for some medical tests as required by the insurer. You have to attend these tests to provide correct and updated health information and help underwriter assess the policy risks.
5. Update Details Of The Nominee To Help Faster Claim Settlement
There are many people who just apply for a life insurance policy for only financial benefits or tax benefits and do not give much thought to the process of claim settlement and the insurance benefits that the beneficiaries can get in case of any contingent situation. Naturally, they carelessly fill up the nominee information without caring much about the credibility of correctness. Remember, at the time of claim settlement the nominee information should match with the original documents provided by the nominee and any dissimilarity or difference in this can lead to delay or rejection of claim. In case the nominee of a policy dies earlier than the insured person, update the information with the insurer and provide a different nominee as applicable.
6. Make Sure That The Policy Is Not Lapsed
Any insurance claim is null and void when the respective policy is lapsed and not in force. This is why to get your claims you need to ensure paying the premiums before due date and keep the policy alive. All insurance companies provide a grace period for paying their premium in case the due date is failed. Only if you cannot pay the premiums within this grace period the policy become lapsed and you fail to get your insurance claim.
7. Fill Insurance Claims At The Earliest
Your family may forget filling up claim forms when going through an emergency situation. Yes, it may not be a priority high on the list but nevertheless you cannot completely avoid this as such negligence can prove costly when it comes to settlement of claims. Even when someone cannot attend such a situation one can always communicate the company through a friend or close one and intimate the insurance company about the same. When you do not make any delay in intimating insurance company, your claim is processed smoothly without least delay.
Life insurance is meant for achieving the financial goals in case of any sudden loss or contingent situation. But to have the full insurance benefits you need to adhere to the norms and provide information as you are asked for.
Many of us people think it is absurd to purchase the life insurance plans at an early stage of life, because you are too young to die and have a whole lot of life to earn and save for the life insurance plans, but truly speaking, the life insurance plans should be bought in the early years of your working life. Even if you go and ask any of the financial planner or advisor, they will also suggest you to go and purchase the life insurance in the early years of your earning.
Owning a life insurance is not a sign that you are near your last days, but it symbolizes your smartness and the ways how wisely you have planned for your family and loved ones even if you are not around to take care of them. Most of the people are unmarried in their early years of the earnings and they do not think that there is any need for the life insurance right now as they have not started off with their family life yet.
But think about it twice, once the family life starts, the responsibilities gets doubled, the expenses increases, the family needs to take some important investment decisions for the settlement of the family or the buying of a new house, or any thoughts about the family planning in the upcoming future years and so on the expenses keeps on increasing.
When do you exactly have the time to save from your mere income from which you serve the family, take care of your dependents and even pay for the mortgage?
When you are the only bread bearer of the family then you need to have a life insurance. The life insurance is the best investment plan to safeguard of the future of your loved ones after something happens to you. You can take care of your family members even when you are not around. The life insurance plans provides the death coverage for any uncertain event. The death coverage helps the family in the times of any financial crisis or provides them the financial strength and stability to carry on with their lives smoothly.
Read here: Complete guide on Covid-19 Medical Insurance
The Younger You Purchase The Life Insurance, The Better It Is
You would not want your family to suffer from the financial problems when you are not around and thus you would definitely want to set aside some amount of money that is more than enough for all the future needs of the family and the uncertain events that may occur in the future. And if you begin saving for your life insurance in the early years of your life then you can save more than others and can also save it very cheaply. As it is always said the younger the merrier.
Here are some of the major reasons which will support you in the purchasing of the life insurance while you are young –
- Health is wealth. It is a known fact that you are much more healthy and energetic in your twenties than you can be in later years, so you can work hard to earn more money and can start your life insurance soon by savings and investing with almost 10% of your total earning. And life insurance companies also rely on the health of the individual at the time of the issuing of the life insurance plans. You are prone to a large amount of premiums if you start your life insurance in later years when you are not as healthy as in your twenties.
- You can get loyalty benefits for being a long term client to the life insurance company. The companies provide lots of loyalty benefits to their clients in order to be competitive in the market. And if you have started off with your life insurance in early twenties, then by the time you are in your fifties, you would have earned a lot of life insurance loyalty benefits.
- Life insurance provides you the cash value. The cash value of the insurance amount is so much important factor. On the basis of the cash value, an individual can take loans and borrow money from the banks. The policy loans need to be taken for any major life events in the future years and thus there is another advantage of having a life insurance early.
- Save you money. It is always said to save your money, but keeping aside the money can reduce its time value and thus life insurance is the best way to invest the savings if you are a conservative investor.
- You can also get various tax benefits. The premiums for the life insurance plans reduce the total taxable amount and thus one can use it to save their income tax as well.
- The younger, the cheaper. This is true for life insurance, as you have a long period of time to save a huge pile of wealth for your loved ones, and you can also do it with cheaper premiums.
So these were the important reasons why you should be insuring yourself in the early years rather than waiting for your mid 40s when premium will be too high.